financial report

MEETSNC-LAVALIN

2 0 1 1 F I N A N C I A L R E P O R T

DISCOVER SNC-LAVALIN

S N C - L A V A L I N


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S A I N T L O U I S S U C R EFrance

K A R E B B E H Y D R O P R O J E C TIndonesia

We invite you to meet our people to truly understand why SNC-Lavalin projects succeed. We’re an international leader in engineering and construction, and one of the foremost players in operations, maintenance and infrastructure concession investments. We mobilize our people’s experience, technical skills and global diversity to best serve our clients, developing sustainable solutions that support the widest range of stakeholders. We now invite you to also discover SNC-Lavalin.

Financial Highlights 2

2011 Management’s Discussion and Analysis 4

Management’s Responsibility for Financial Reporting 84

Independent Auditor’s Report 85

Consolidated Financial Statements 86

Notes to Consolidated Financial Statements 92

Office of the President 170

Board of Directors 170

Glossary of Terms 171

Ten-Year Statistical Summary 172

Information for Shareholders 174



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28,000EMPLOYEES

ONGOING PROJECTS IN

100COUNTRIES

OVER

$1 billionIN CASH

Diversity by

industry segment

Diversity by

geographic area

Financial Highlights

27%INFRASTRUCTURE

AND ENVIRONMENT

5%OTHER

INDUSTRIES 7%INFRASTRUCTURE

CONCESSION INVESTMENTS

15%HYDROCARBONS

& CHEMICALS

13%POWER

14%MINING

& METALLURGY

19%OPERATIONS

& MAINTENANCE

56%CANADA

3%ASIA PACIFIC

1%OTHER REGIONS

3%UNITED STATES

16%AFRICA

9%EUROPE

5%MIDDLE EAST

7%LATIN AMERICA

2011 REVENUES



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DIVIDENDS(in CA$)

21%5-year

dividend CAGR(2)

BACKLOG(in billions CA$)

$10billionbacklog at December 31, 2011

ROASE(1)

(in %)

19%ROASE(1)

for 2011

NET INCOME(in millions CA$)

$379 million net income

in 2011

07 08 09 10 11

151.

4

312.

5 359.

4

476.

7

378.

8

CND GAAP IFRS

07 08 09 10 11

8.5

7.2

8.3

9.7 10

.1

07 08 09 10 11

16.4

29.1

27.3 28

.4

19.3

CND GAAP IFRS

07 08 09 10 11

0.39

0.51

0.62

0.72

0.85

(1) Return on average shareholders’ equity

(2) Compound annual growth rate



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March 25, 2012(1)

Management’s Discussion and Analysis (“MD&A”) is designed to provide the reader with a greater understanding of the Company’s business,

business strategy and performance, as well as how it manages risk and capital resources. It is intended to enhance the understanding of the

audited annual consolidated fi nancial statements and accompanying notes, and should therefore be read in conjunction with these documents,

and should also be read together with the text below on forward-looking statements. Reference in this MD&A to the “Company” or to

“SNC-Lavalin” means, as the context may require, SNC-Lavalin Group Inc. and all or some of its subsidiaries or joint ventures, or SNC-Lavalin

Group Inc. or one or more of its subsidiaries or joint ventures.

The Company’s quarterly and annual fi nancial information, its Annual Information Form, its Management Proxy Circular and other fi nancial

documents are available on the Company’s website (www.snclavalin.com) as well as on SEDAR (www.sedar.com), the system used for

electronically fi ling most securities-related information with the Canadian securities regulatory authorities.

Unless otherwise indicated, all fi nancial information presented in this MD&A, including tabular amounts, is in Canadian dollars and is prepared in accordance with International Financial Reporting Standards (“IFRS”).

The year 2011 is the fi rst year for which the Company’s consolidated fi nancial statements have been prepared in accordance with IFRS.

The 2010 comparative fi gures and the January 1, 2010 (“Date of Transition”) opening statement of fi nancial position have been restated as per

the guidance provided in IFRS 1, First-Time Adoption of International Financial Reporting Standards, (“IFRS 1”). See Note 35 to the Company’s 2011

audited annual consolidated fi nancial statements for quantitative reconciliations between Canadian generally accepted accounting principles

(“GAAP”) and IFRS. The most signifi cant impacts for the Company of adopting IFRS related to: i) the presentation of the net income attributable

to SNC-Lavalin shareholders separately from the net income attributable to non-controlling interests; ii) the accounting for its jointly

controlled entities for Infrastructure Concession Investments (“ICI”), accounted for under IAS 31, Interests in Joint Ventures, (“IAS 31”); and

iii) the accounting for the Company’s ICI that are accounted for under IFRIC Interpretation 12, Service Concession Arrangements, (“IFRIC 12”).

The transition to IFRS had an impact on the Company’s ICI, but only a limited impact on the Company’s other activities.

FORWARD-LOOKING STATEMENTS

Statements made in this MD&A that describe the Company’s or management’s budgets, estimates, expectations, forecasts, objectives,

predictions or projections of the future may be “forward-looking statements”, which can be identifi ed by the use of the conditional

or forward-looking terminology such as “anticipates”, “believes”, “estimates”, “expects”, “may”, “plans”, “projects”, “should”, “will”, or the negative

thereof or other variations thereon. The Company cautions that, by their nature, forward-looking statements involve risks and uncertainties,

and that its actual actions and/or results could differ materially from those expressed or implied in such forward-looking statements, or could

affect the extent to which a particular projection materializes.

Many factors and assumptions could have an impact on the materialization of the Company’s projections, including, but not limited to,

project performance, cost overruns, performance of joint venture partners, ability to attract and retain qualifi ed personnel, subcontractors

and suppliers, economic and political conditions, non-compliance with laws or regulations by the Company’s employees, agents, suppliers,

and/or partners, and other factors that are beyond its control. Additional risks and uncertainties exist by reason of the identifi ed material

weaknesses in the Company’s internal control over fi nancial reporting and the matters investigated in connection with the Independent Review

(as defi ned below), which are described in detail in this MD&A. The Company cautions that the foregoing list of factors is not exhaustive.

For more information on risks and uncertainties, and assumptions that would cause the Company’s actual results to differ from current

expectations, please refer to the section “Critical Accounting Judgments and Key Sources of Estimation Uncertainty” and the section “Risks

and Uncertainties” in this report.

The forward-looking statements in this document refl ect the Company’s expectations as at March 25, 2012, when the Company’s Board of Directors approved this document, and are subject to change after this date. The Company does not undertake any obligation to update publicly or to revise any such forward-looking statements, unless required by applicable legislation or regulation.

(1) This Management’s Discussion and Analysis is dated March 25, 2012 except with respect to certain announcements made by the Company on March 26, 2012 which are described herein.

2011 Management’s Discussion and Analysis




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TABLE OF CONTENTS SECTION PAGE

1 Recent Developments 6A description of recent developments

2 2011 Highlights 15A summary of the Company’s key results, fi gures and notable events for 2011

3 Overview of Our Business and Strategy 18A discussion of SNC-Lavalin’s business and strategy

4 How We Analyze and Report our Results 21A description of the Company’s activities as well as a description of its budget process,

and how the Company is generally valued

5 Our Key Financial Performance Indicators 30A discussion of the Company’s key fi nancial performance indicators

6 Breakdown of Income Statement 31A detailed analysis of the Company’s consolidated income statement

7 Revenue Backlog 39A description and accompanying discussion of the Company’s revenue backlog recognition

policy and revenue backlog position

8 Geographic Breakdown of Revenues by Category of Activity 45A discussion of the Company’s revenues by geographic area

9 Operating Results by Segment 47A detailed discussion of the Company’s operating results by industry segment

10 Liquidity and Capital Resources 60A discussion of the Company’s fi nancial position, liquidity, cash fl ows and other

fi nancial disclosures

11 Related Party Transactions 70A discussion on the related party transactions entered into by the Company

12 Shareholders and Employee Shareholdings 71A discussion of the Company’s shareholders, including the employees’ share ownership and

share-based compensation programs

13 Critical Accounting Judgments and Key Sources of Estimation Uncertainty 72A description of the Company’s critical accounting judgments and the accounting policies

to which they relate

14 Accounting Policies and Changes 72A report on the accounting policies adopted during the year, including fi rst-time adoption

of IFRS, and those to be adopted in future periods

15 Risks and Uncertainties 74A description of the principal risks and uncertainties facing the Company and the policies

and practices in place to mitigate them

16 Legal Proceedings 79A description of legal proceedings

17 Fourth Quarter Results 80An analysis of the Company’s operating results for the fourth quarter, and its revenue

backlog and fi nancial position as at December 31, 2011

18 Controls and Procedures 80A report on the Company’s disclosure controls and procedures and internal control over

fi nancial reporting

19 Quarterly Information 83A summary of selected Company fi nancial information by quarter for 2011 and 2010




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1 RECENT DEVELOPMENTS

1.1 INDEPENDENT REVIEW

On February 28, 2012, the Company announced that its 2011 net income was expected to be approximately 18% below its previously announced

2011 outlook. Moreover, the Company announced that its Board of Directors had initiated an independent investigation (the “Independent

Review”), led by its Audit Committee, of the facts and circumstances surrounding period expenses of $35 million relating to certain payments

made in the fourth quarter of 2011 that were documented to construction projects to which they did not relate, and certain other contracts,

and that independent legal counsel was retained in this connection.

On March 26, 2012, the Company announced the results of the Independent Review and the related fi ndings and recommendations of the

Audit Committee to the Company’s Board of Directors. The Board of Directors has adopted all of such recommendations, which are directed

primarily at reinforcing standards of conduct, strengthening and improving internal controls and processes and reviewing the compliance

environment, and has directed management to develop a detailed plan and timetable for their implementation.

The Company intends to separately report these matters to the appropriate authorities and to cooperate fully with such authorities with

respect to these and any other matters.

The executive summary of the results of the Independent Review and the related fi ndings and recommendations of the Audit Committee is

reproduced below (the “Independent Review Summary”).

******

EXECUTIVE SUMMARY OF INDEPENDENT REVIEW, FINDINGS AND RECOMMENDATIONS DELIVERED ON MARCH 23, 2012

BACKGROUND OF THE INDEPENDENT REVIEWDuring December 2011 and January 2012, information was received as part of an accounting review and numerous internal meetings, held

amongst certain members of senior management, with respect to two agency agreements documented to construction projects to which they

did not appear to relate. The Chairman of the Board of Directors was briefed on January 19, 2012, requested additional information, and was

further briefed on February 3, 2012, at which time Stikeman Elliott LLP was mandated as independent counsel. The investigation commenced

of payments aggregating US$33.5 million made by the Company in the fourth quarter of 2011 under presumed agency agreements (the

“A Agreements”) documented in respect of Project [Intentionally omitted]1 (“Project 1”) and Project [Intentionally omitted] (“Project 2”),

but believed in fact to relate to Project [Intentionally omitted] (“Project A”). Independent counsel retained investigative advisors to provide

business intelligence and related services.

In February 2012, documents were received by the Company’s Chief Financial Offi cer (the “CFO”)2, and related information was detected as

part of year-end accounting processes, with respect to two other contracts. On February 16, 2012, the Chairman of the Board of Directors

and the Chairman of the Audit Committee were briefed and the scope of the investigation was widened to include: (a) payments aggregating

approximately US$22.5 million made by the Company in 2010 and 2011 under a presumed agency agreement (the “B Agreement” and

together with the A Agreements, the “Agreements”) documented in respect of Project [Intentionally omitted] (“Project 3”), but believed in

fact to relate to Project [Intentionally omitted] (“Project B”); and (b) a presumed collection agreement (the “Collection Agreement”) and

related 2009 invoice (the “Invoice”) purporting to relate to the settlement of a dispute relating to Project [Intentionally omitted] (“Project 4”),

as to which there was no information at the time.

On January 23, 2012 and on February 16, 2012, the Company informed its external auditor, Deloitte & Touche LLP (“D&T”), of the subject

matters of the Independent Review, and has since regularly kept them informed as it has progressed.

1 Because of the private or commercially sensitive nature of such information, neither the projects nor outside parties involved are named in this executive summary.

2 See note 8 below.




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Independent counsel has reported periodically to the Audit Committee or the outside members of the Board of Directors on the progress of

the Independent Review. Outside Board members were invited to attend Audit Committee meetings. The Chairs of the Audit Committee and

of the Board of Directors were briefed regularly to update them on the progress of the Independent Review, as well as to seek instructions

on matters arising therefrom.

On February 27, 2012, based upon the analysis to date regarding the A Agreements, the Audit Committee was informed by management that

they had concluded, with the concurrence of D&T in the context of their audit of the 2011 fi nancial statements, that the payments thereunder

would need to be recorded as period expenses (i.e. not generating any revenues).

On February 28, 2012, before the opening of markets, the Company publicly announced that its 2011 net income is expected to be approximately

18% (or approximately $80 million) below its previously announced 2011 outlook, including because of period expenses of approximately

$35 million relating to certain payments referred to above made in the fourth quarter of 2011 that were documented to projects to which

they did not relate and, consequently, had to be recorded as expenses in the quarter.

SCOPE OF THE INDEPENDENT REVIEWThe scope of the Independent Review and the processes undertaken were approved by the outside members of the Board of Directors or

the Audit Committee, as the case may be. From the outset, the cooperation and support of current senior executive offi cers was sought and

obtained in the Independent Review, including assistance in helping to coordinate requests and to obtain information.

At the direction of independent counsel, electronic and paper documents were collected from Company corporate headquarters in Montreal,

Company servers and members of senior management and key employees. The electronic documents were searched using relevant

keywords, and documents fl agged as a result of the searches performed were reviewed. Independent counsel interviewed members of senior

management and other employees identifi ed as possibly having knowledge about the subject matter of the Independent Review or who were

otherwise relevant to it, in some cases more than once. In addition, at the direction of independent counsel, background intelligence and

other information was sought about various companies and individuals.

Background intelligence work was carried out in respect of the named counterparties to the Agreements and Collection Agreement and

other entities where some form of connection was observed to such named counterparties. This consisted primarily of searches of publicly

available information, such as company records in the relevant jurisdictions.

The Independent Review has been subject to certain practical limitations, including that: (a) Mr. Riadh Ben Aïssa (the “Former EVP Construction”),

a former senior executive of the Company, is believed to have direct and signifi cant knowledge about most of the investigated transactions, but

has not been met despite a request to his counsel; (b) Mr. Stéphane Roy (the “Former Controller Construction”), a former executive of the

Company who may have knowledge about some of the investigated transactions, was met prior to his dismissal on February 9, 2012, but has

not been met since; (c) the information reviewed is limited to that within the Company’s control and information that is publicly available; (d)

the relevant counterparties to the Agreements and Collection Agreement are constituted in multiple jurisdictions and public records in certain

of these contain limited information which may not be complete, current or accurate; (e) third parties have been unresponsive or reluctant

to provide information regarding their operations or their clients’ affairs; (f) some former employees have conducted Company affairs using

non-corporate email addresses or had password protected devices to which the Company does not have access; (g) the conclusions drawn

are limited to the information obtained to date; and (h) the interpretation of improper documentation cannot be defi nitive, including because

it is known to be inaccurate, at least in some respects, and the true arrangement and terms thereof will be inferred from contradicting or

supplementing oral or circumstantial evidence.




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RESULTS OF THE INDEPENDENT REVIEW

PRELIMINARY MATTERS

The Agreements are based upon the form of representative agreement contemplated in the Company’s Policy on Commercial Agents/

Representatives (the “Agents Policy”). The Agents Policy sets out the rules governing the hiring and remuneration of commercial agents

or representatives by the Company in various markets around the world. One key feature of the Agents Policy is that all of the hiring and

remuneration of agents is the responsibility of SNC-Lavalin International Inc. (“SLII”), a subsidiary of the Company. There are different

authorized signatories depending on whether the contract with the agent respects certain limits, but no provision in the Agents Policy allows

any person to override the Agents Policy.3

FINDINGS DERIVED FROM INFORMATION OBTAINED

Based upon the information obtained as part of the Independent Review, and although there is no documentary evidence linking the

Agreements to Project A or Project B: (a) a presumed agent, representative or consultant4 appears to have been retained for each of Project

A and Project B; (b) the Agreements were respectively documented in respect of Projects 1 and 2 (instead of Project A) and Project 3 (instead

of Project B); (c) all or part of the US$33.5 million paid in 2011 under the A Agreements is more likely than not to relate to Project A; and (d)

all or part of the approximately US$22.5 million paid in 2010 and 2011 under the B Agreement is more likely than not to relate to Project B.

No agency agreement other than the Agreements came to light in the context of the Independent Review as being improperly documented

in respect of a project to which it did not effectively relate.

3 The Agents Policy also provides among others for the existence of a written agreement with any agent, the use of an approved master agreement, a progressive

payment schedule for commercial fees, percentage or ratio limits on commercial fees, a procedure for approval and signature of agreements and payments

thereunder, standard distribution of the agreements once signed, diligence and certifi cation requirements, and an approval process in case an agreement departs

from the specifi ed limits

4 Given it is not known precisely what services were rendered, reference is made, for convenience purposes, to a presumed agency or agent throughout this

executive summary.




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The following table summarizes these fi ndings:

A Agreements B Agreement

Presumed agents hired In 2011, the Former EVP Construction said that he had hired an agent to help secure work in respect of Project A.

The Independent Review has found no direct and conclusive evidence establishing the nature of the services or actions undertaken by, or the true identity of, any presumed agent. The counterparties named in the A Agreements appear to be without substance, and any individual named on the public registers in relation to the corporate counterparties does not appear to be a true principal.5

In 2009, the Former EVP Construction said that he had hired an agent to help secure work in respect of Project B.

The Independent Review has found no direct and conclusive evidence establishing the nature of the services or actions undertaken by, or the true identity of, any presumed agent. The counterparty named in the B Agreement appears to be without substance, and any individual named on the public registers in relation to the corporate counterparties does not appear to be a true principal.

Decisions to attribute to other projects

At the same time, a decision was made not to charge the presumed agents’ fees to Project A, and not to otherwise associate the presumed agents with Project A

At the same time, a decision was made not to charge the presumed agent’s fees to Project B, and not to otherwise associate the presumed agent with Project B.

Execution of improper documents

The Former EVP Construction co-signed and instructed a senior offi cer of SLII to co-sign the A Agreements on behalf of SLII. The A Agreements were improperly documented in respect of Projects 1 and 2.

The Former EVP Construction instructed a senior offi cer of SLII to sign the B Agreement on behalf of SLII. The B Agreement was improperly documented in respect of Project 3.

Agents Policy The Agents Policy was not complied with in various respects in connection with the A Agreements, including the authorized signatories and the aggregate corporate limits on fees attributable to the attributed projects.

The Agents Policy was not complied with in various respects in connection with the B Agreement, including the authorized signatories and the aggregate corporate limits on fees attributable to the attributed project.

Payments The A Agreements contemplated fees of US$33.5 million in the aggregate. In December 2011, payments of US$33.5 million under the A Agreements were requested of SLII by the Former EVP Construction. The required signatories (the Chairman of SLII and the CFO) refused to approve the payments. The requests were brought to the Company’s Chief Executive Offi cer (the “CEO”), who authorized or permitted the Former EVP Construction to make the payments through his division.

The B Agreement contemplated fees of $30 million. Payments aggregating approximately US$22.5 million6 were made in 2010 and 2011 through SLII (Tunisia), but were improperly approved on its behalf by the Former EVP Construction and someone within his division.

Use of payments, etc. The Independent Review has found no direct and conclusive evidence establishing the exact use, purpose or benefi ciaries of payments made under the A Agreements. However, as noted above, the decision to hire presumed agents was based on the understanding at the time that it would help secure work in respect of Project A.

The Independent Review has found no direct and conclusive evidence establishing the exact use, purpose or benefi ciaries of payments made under the B Agreement. However, as noted above, the decision to hire a presumed agent was based on the understanding at the time it would help secure work in respect of Project B.

Accounting Payments were to be accounted for in respect of Projects 1 and 2 in accordance with the improper documentation. Accounting entries were not made or were made and reversed in short order in relation to Projects 1 and 2.

Payments were accounted for in respect of Project 3 in accordance with the improper documentation. Accounting entries were made in relation to Project 3 in 2010 and 2011. The entries were subsequently detected in February 2012 as an anomaly and reported to the Senior Vice-President and Controller of the Company.

Disclosure The agencies on Project A were neither properly disclosed within the Company, nor were they disclosed to its internal or external auditors until shortly before the Independent Review began.7

In late 2011, the CFO was told at a meeting with the CEO and the Former EVP Construction that agents had been hired on Project A. The CFO objected to any involvement.

The agency on Project B was neither properly disclosed within the Company, nor to its internal or external auditors until shortly before the Independent Review began.

In 2010, the CFO was told at a meeting with the CEO and the Former EVP Construction that an agent had been hired on Project B and that its fees would be charged to other projects. The CFO objected to this at the meeting.

5 In correlating this information to similar information obtained, certain relationships have been established through co-directorships or otherwise with other

counterparties to other agency agreements.

6 It is assumed that this corresponds to a renegotiated fee arrangement resulting from a change in the project cost, but there is no evidence of this amendment.

7 In 2011, a senior offi cer was told that a presumed agent had been hired for Project A. He did not, however, see the A Agreements.




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COLLECTION AGREEMENT

The Collection Agreement and the Invoice were received together. The Collection Agreement purports to relate to a dispute over an

amount owing to the Company under Project 4 and to give rise to a payable of US$8.25 million. The Invoice appears to have been received

by the Company in 2011 only, but payment was refused on the basis that there were no records or other information available about such

an arrangement. On March 21, 2012, a demand letter was received from legal counsel to the counterparty demanding payment of Euros

(sic) 8.25 million. To date, other than these documents, there is no oral, documentary or circumstantial evidence linking the documents

to Project 4 or any other project. In addition, there does not appear to be any payment of any amount to the payee thereof since January

2010. Accordingly, no conclusion can be drawn other than that these documents are unlikely to relate to Project 4, including because

there is already a collection arrangement in respect of the presumed dispute and there is no obvious reason why there would need to be a

second collection agreement on the project. The Independent Review has found no direct and conclusive evidence establishing the nature

of the services or actions undertaken by, or the true identity of, the presumed agent. From the business intelligence gathered, the named

counterparty appears to be without substance, and the true principal involved in the transaction does not appear to be an individual named

on the public registers relating to the counterparty.

POTENTIAL SANCTIONS

In the absence of direct and conclusive evidence, the use and purpose of the payments or nature of the services rendered or actions taken

under the Agreements cannot be determined with certainty. However, the absence of conclusive fi ndings does not exclude the possibility

that, if additional facts that were adverse to the Company became known, sanctions could be brought against it in connection with possible

violations of law or contracts.

CODE OF ETHICS AND BUSINESS CONDUCT AND RELATED MATTERS

INTRODUCTIONCode. The Company’s Code of Ethics and Business Conduct (the “Code”) was considered in light of the fi ndings of the Independent Review.

The general policy underlying the Code is expressed as follows:

“Our policy is to maintain ethical standards in the conduct of our business and in our relations with whomever we associate – our

colleagues, directors, shareholders, customers, associates and suppliers, as well as governments, the public and the media. Our

integrity and reputation for ethical practices are among our most valued assets and are essential aspects of our sustained profi tability.”

The Code applies to “all members of the Boards of Directors and to all offi cers and employees of SNC-Lavalin in Canada and abroad.” It

imposes personal obligations on all directors, offi cers and employees “[a]s a condition of membership and of employment”, and each must

acknowledge having read the Code, understanding its contents, and being bound by its provisions.

Each person who authorizes or participates in a breach of the Code breaches the Code (“each one of us is accountable for his or her actions”).

However, while it is open to any individual who is aware of a suspected breach of the Code by others to report it, there is no duty to report

such a suspected breach, such that a person who has knowledge of a breach of the Code and who does not report it is not himself or herself

in breach.

Whistleblower Policy. The Procedures for Complaints and Concerns Regarding Accounting, Internal Accounting Controls, Auditing and Other

Matters (the “Whistleblower Policy”) sets out the procedures governing complaints, including matters such as protecting the confi dentiality

of any whistleblower and ensuring that there be no retaliation against a whistleblower. The Whistleblower Policy does not, however, impose

an obligation to report an issue.

Agents Policy. The Code provides that “[a]ll transactions are conducted at the level of authority required by SNC-Lavalin policies and

procedures”, such that a breach of the Agents Policy is a breach of the Code.




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RECORDS RULEIn the present circumstances, the relevant provisions of the Code includes compliance with sound accounting practices and record maintenance

(the “Records Rule”):

Compliance with Sound Accounting Practices and Record Maintenance

“Accurately refl ecting our business transactions”

We all have a responsibility to ensure that SNC-Lavalin’s books and records accurately and punctually refl ect the Company’s transactions,

assets and liabilities. We adhere to a proper application of accepted accounting standards and practices, rules, regulations and controls.

These commitments include the following:

> Business records, expense reports, invoices, vouchers, payrolls, employee records and other reports are prepared with care and

honesty and in a timely fashion.

> All transactions are conducted at the level of authority required by SNC-Lavalin policies and procedures and in compliance with

applicable rules and regulations.

> No transaction, asset, liability or other fi nancial information is concealed from management or from SNC-Lavalin’s internal and

external auditors. …

> All documents signed are, to the best of our knowledge, accurate and truthful.

> False or misleading entries and unrecorded bank accounts, for any purpose, whether regarding sales, purchases or other Company

activity, are strictly prohibited. ...

The above list is by no means exhaustive. Suspected breaches of our accounting practices and record maintenance and internal controls that

appear to be in violation will be investigated.” [Emphasis added.]

The Records Rule does not refer to or incorporate materiality thresholds explicitly or implicitly, except where it refers to accounting practices.

Accordingly, a fi nding that the Records Rule has been breached does not require or imply misconduct resulting in a material event on a

consolidated basis.

FINDINGS

In the present circumstances, the Records Rule was not complied with as a result of any one of the following fi ndings: (a) the improper

documentation of agency arrangements in respect of projects to which they did not relate, and concealment thereof; (b) incorrect entries

relating to payments in the books and records of the Company, and concealment thereof; and (c) non-compliance with the Agents Policy.

Transactions not disclosed. The Code provides that no transaction or other fi nancial information is concealed from management or from

internal and external auditors. In December 2009 and in July 2011, presumed agents in respect of Projects A and B respectively were hired

by the Former EVP Construction, without complying with the Agents Policy. The agencies on Projects A and B were neither properly disclosed

within the Company, nor were they disclosed to its internal or external auditors until shortly before the Independent Review began. The CEO

and Former EVP Construction authorized or permitted this course of action until 2012, which did not comply with the Code.

Accuracy of documents and records. The Code provides that the Company’s books and records accurately refl ect the Company’s transactions

and that all documents signed are, to the best of one’s knowledge, accurate and truthful. The Agreements signed by the Former EVP

Construction are neither accurate nor truthful, and thus in breach of the Code. The books and records relating to Project 3 inaccurately refl ect

fees unrelated to it. The CEO knew that agents were being hired by the Former EVP Construction on Projects A and B in unusual circumstances,

and that the Former EVP Construction would cause their fees not to be charged to Projects A and B but rather to other projects.8 Th e CEO

did not see the Agreements or accounting entries in the Company’s books and records, but should have known that contractual documents

would refer to projects other than Projects A and B and that incorrect entries would be made, which did not comply with the Code.

Proper levels of authority. The Code provides that all transactions are conducted at the level of authority required by Company policies, and

the Agents Policy provides that all payments of agent fees must be made by SLII. In December 2011, the Former EVP Construction requested

SLII to make the payments under the Agreements. The Chairman of SLII and the CFO refused to authorize the payments. The matter was

brought to the CEO, who authorized or permitted the Former EVP Construction to make the payments through his division. While the CEO

thought he had the authority to do so, he should have confi rmed his authority but did not. The CEO’s authorization of these payments did

not comply with the Agents Policy and therefore was in breach of the Code.

8 No fi nding is expressed regarding the Former Controller Construction. However, some awareness on his part of the Agreements can be inferred from the fact

he handed copies and/or originals thereof to the CFO upon his departure in February 2012.




12

SUMMARY OF ACTIONS RECOMMENDED

The Audit Committee has found that the hiring of presumed agents in respect of Projects A and B and the improper documentation results

primarily from the following:

> management override, fl awed design or ineffective enforcement of controls in connection with the presumed agencies, including the

controls contained in the Agents Policy;

> non-compliance with the Code and the Agents Policy; and

> ineffective enforcement or scope of, or controls over compliance with, the Code and the Agents Policy.

The Company is a multi-national organization that has changed organizational structure over the past several years. One legacy of this

changing structure is distributed leadership, which has generally served the Company well. The Audit Committee notes that the model could

usefully be reviewed over time and within a broader context.

GOVERNING PRINCIPLESThe Audit Committee considered what governing principles, based on the results of the Independent Review, should be considered to prevent

recurrence of inappropriate conduct, and to improve the compliance and control environments. These principles were directed primarily at:

> reinforcing standards of conduct

> strengthening and improving internal controls and processes

> reviewing the compliance environment

RECOMMENDATIONSThe Audit Committee recommendations are discussed below, for consideration by the Board of Directors. If adopted, management should be

directed, where applicable, to develop a detailed plan and timetable for their implementation, subject to the Board of Directors monitoring

the implementation thereof by management.

CODE AND RELATED MATTERS

The Audit Committee recommends the following measures be taken in light of its fi ndings:

> Non-compliance with the Code. The Board of Directors should consider what sanctions if any to apply in connection with non-compliance

with the Code9. G enerally, in exercising its powers with a view to the best interests of the Company, the Board of Directors may consider

in assessing breaches of the Code the following factors:

> the individual’s functions and responsibilities within the Company;

> the nature and seriousness of the conduct, including the risk of harm to the Company, whether it was repeated, and whether it

constituted a breach of law;

> whether the individual devised or was a participant in the conduct, the length of participation, and the motivation in participating;

> the timely and voluntary disclosure of the breach and the willingness to cooperate in the investigation;

> any loss or risks to the Company resulting from the conduct, and whether there are any illicit gains to an individual;

> whether the breach constitutes aberrant behavior in light of an individual’s overall history with the Company and character; and

> the multiple purposes of enforcing the Code, including sanctioning inappropriate conduct, and specifi c and general deterrence.

> Code and Whistleblower Policy. The Audit Committee also recommends that the ongoing review and update of the Code, as well as of

the Whistleblower Policy, take its fi ndings into account, including to provide for a duty to report violations or possible violations of policies

or procedures.

9 These could include disciplinary, compensation, training or other measures.




13

INTERNAL CONTROLS AND PROCESSES, AND COMPLIANCEInternal controls foster sound monitoring of business operations and corporate assets, accurate fi nancial reporting, and compliance with

laws, and correspondingly reduce the risks of misuse, inaccuracies and non-compliance. Accordingly, the Audit Committee recommends the

implementation of the following measures (the implementation of some of which has already been initiated):

> Management departures. The Company should clarify the procedure to be followed in cases of acceptable management departures from

policies or procedures.

> Compliance review. The Board of Directors should hire an independent expert to provide advice on the structure of the organization,

guidelines and controls, and communication and training.

> Agents Policy. The Agents Policy should continue to be reviewed from time to time as legislative changes and commercial practices

evolve, including in accordance with the proposed changes presented to the Audit Committee in February 2012. However, the Agents

Policy should be further reviewed in light of the fi ndings of the Independent Review.

> Approval levels. Procedures and approvals should be reinforced regarding levels of authority, with clear reporting obligations on any

deviations or proposed deviations therefrom.

> Divisional controllers. The reporting lines for divisional controllers should be reviewed.

> Internal audit function. The existing practice of having the head of the internal audit group report directly to the Audit Committee should

now be formally documented.

> Technology. The Company should continue to move forward with the integration of its technology platforms to further facilitate the

production of accurate fi nancial information results, as well as the monitoring thereof in a timely and cost effective manner.

RECOMMENDED ADOPTIONAfter thorough consideration, the Audit Committee has recommended the adoption by the Board of Directors of each of the recommendations

set out above.

CONCLUSION

The Audit Committee understands that with the delivery of this report, its Independent Review of the Agreements and Collection Agreement

is terminated. The Audit Committee will continue to review the Agents Policy and compliance matters, including to assess whether amounts

may directly or indirectly have improperly been paid to persons owing fi duciary duties to the Company. The Audit Committee will continue

to consider, develop and implement additional remedial measures as appropriate. The Audit Committee would expect its next steps may

include such other specifi c activities as it may deem advisable or the Board may instruct.

******




14

1.2 DEPARTURE OF CEO AND APPOINTMENT OF INTERIM CEO

On March 26, 2012, the Company announced that Mr. Pierre Duhaime has stepped down from his position as chief executive offi cer of the

Company (the “Former CEO”) and as a director of the Company and will retire from the Company. At the request of the Board of Directors,

Mr. Ian A. Bourne agreed to assume the function of vice-chairman and interim chief executive offi cer of the Company (the “Interim CEO”).

Mr. Bourne has served as a director of the Company and a member of its Audit Committee and Health, Safety and Environment Committee

since 2009. Mr. Bourne will remain as a director of the Company but will temporarily step down from the Board Committees. The Company

also announced that a search for a new Chief Executive Offi cer will begin immediately under the direction of the Chairman of the Board. Both

internal and external candidates will be considered.

The Board of Directors has struck a Special Transition Committee composed of the Chairman of the Board of Directors, the Interim CEO,

and the Chairmen of the Audit and Human Resources Committees to assist with transitional matters, including serving as a resource to the

management team.

1.3 PROPOSED CLASS ACTION

On March 5, 2012, the Company announced that it had become aware that a “Motion to Authorize the Beginning of a Class Action and to

Obtain the Status of Representative” (the “Motion”) had been fi led with the Superior Court of Quebec in the Judicial District of Quebec. The

Company, its current directors and certain current offi cers, as well as certain former employees of the Company, have been named as

defendants in the proposed action.

The Motion seeks authorization of the Court to bring a class action in connection with alleged misrepresentations on behalf of all persons who

acquired securities of the Company from March 13, 2009 to February 28, 2012 and, if so authorized, various declarations and compensatory

damages of $250 million are sought. See section 16 “Legal Proceedings”.

1.4 BANGLADESH INVESTIGATION

As previously announced on September 6, 2011, the Royal Canadian Mounted Police (the “RCMP”) is investigating the Company’s involvement in

projects in Bangladesh and certain countries in Africa. The Company understands that the investigation is primarily focused on its involvement

in a past submission as the Owner’s Engineer for the Bangladesh government where the Company would have supervised the contractor

responsible for the overall project. The Company’s involvement in this matter is also being investigated by the World Bank. The Company

understands that the RCMP investigation into this matter is ongoing but no charges have been laid against the Company. The Company also

understands that the World Bank investigation is ongoing but no sanctions or proceedings have been initiated against the Company. Due to

the nature of these investigations, it is not possible to predict the respective outcomes with any certainty or potential losses, if any, for the

Company in connection therewith.




15

2 2011 HIGHLIGHTS

DECREASE IN 2011 NET INCOME

YEAR ENDED DECEMBER 31(IN MILLIONS OF CANADIAN DOLLARS, EXCEPT EARNINGS PER SHARE) 2011 2010 CHANGE (%)

Net income attributable to SNC-Lavalin shareholders:

From net gains from the disposals of certain assets and investments $ – $ 45.7 N/A

Excluding ICI and a net gain from the disposal of certain technology solution assets 247.6 322.2 (23.1%)

From ICI, excluding a net gain from the disposal of investments 131.2 108.8 20.6%

Net income attributable to SNC-Lavalin shareholders $ 378.8 $ 476.7 (20.5%)

Earnings per share (diluted) (in $) $ 2.49 $ 3.13 (20.5%)

> For the year ended December 31, 2011, net income attributable to SNC-Lavalin shareholders was $378.8 million ($2.49 per share on a diluted

basis), compared to $476.7 million ($3.13 per share on a diluted basis) for the comparable period in 2010, or $431.0 million ($2.83 per

share on a diluted basis) excluding the net gains of $45.7 million from the disposals of certain assets and investments recognized in 2010.

> The variance refl ected a lower net income attributable to SNC-Lavalin shareholders excluding ICI, partially offset by a higher net income

attributable to SNC-Lavalin shareholders from ICI, in both cases excluding the net gains from the disposals of certain assets and

investments. The decrease in net income attributable to SNC-Lavalin shareholders excluding ICI mainly refl ected a lower contribution

from Infrastructure & Environment partially offset by higher contributions from all other segments, while the increase in net income

attributable to SNC-Lavalin shareholders from ICI refl ected higher dividends from 407 International Inc. (“Highway 407”).

> As announced in a press release dated February 28, 2012, in the fourth quarter of 2011, the Company recognized a net loss of $35

million related to payments made in the fourth quarter of 2011, under what are presumed to be agency agreements (refer to section 1.1”

“Recent Developments – Independent Review”). In addition, the Company’s 2010 results were adjusted by reducing net income by $17.9

million to refl ect the impact of payments of $20 million made in 2010, made under what is presumed to be an agency agreement. The

Company decided to correct its prior period comparative fi nancial information in its fi rst issuance of annual audited consolidated fi nancial

statements prepared in accordance with IFRS (refer to section 1.1 “Recent Developments – Independent Review” and section 14.1 “First-

Time Adoption of IFRS”).

HIGHER REVENUES IN 2011

YEAR ENDED DECEMBER 31(IN MILLIONS OF CANADIAN DOLLARS) 2011 2010 CHANGE (%)

Revenues $ 7,209.9 $ 5,993.9 20.3%

> Revenues increased in all the Company’s industry segments and in all revenue categories, with Packages revenues growing by 34.3%

and Services revenues growing by 18.7%.

SOLID FINANCIAL POSITION

DECEMBER 31(IN MILLIONS OF CANADIAN DOLLARS) 2011 2010 CHANGE (%)

Cash and cash equivalents $ 1,231.0 $ 1,235.1 (0.3%)

Net cash position $ 851.7 $ 870.1 (2.1%)

> Net cash position (cash and cash equivalents less cash and cash equivalents from ICI and recourse debt) remained solid as at

December 31, 2011.

> Cash and cash equivalents in 2011 remained in line with 2010, mainly refl ecting cash generated from operating activities, offset mainly

by cash used for investing activities.




16

> The freehold cash, a non-IFRS fi nancial measure defi ned as the amount of cash and cash equivalents that is not committed for its operations,

investments in ICI and balance of payment for past business acquisitions, decreased to $750 million at the end of 2011 compared to

$900 million at the end of 2010, mainly refl ecting cash and cash equivalents used for the acquisition of Macquarie Essential Assets

Partnership’s (“MEAP”) 23.08% ownership interest in AltaLink, as well as the acquisition of a subsidiary’s debenture as part of the same

transaction, as well as the estimated cash requirements to complete existing projects, cash used for business acquisitions, and dividends

paid to SNC-Lavalin shareholders. This decrease was partially offset by cash generated from operating activities excluding ICI.

STRONG REVENUE BACKLOG

DECEMBER 31(IN MILLIONS OF CANADIAN DOLLARS) 2011 2010

Services $ 2,226.1 $ 1,410.7

Packages 5,482.8 5,572.4

Operations & Maintenance (“O&M”) 2,379.1 2,732.8

Total $ 10,088.0 $ 9,715.9

> The increase in the Company’s overall revenue backlog as at December 31, 2011 compared to December 31, 2010 refl ected the 57.8%

increase in Services, at an all-time high of $2.2 billion, partially offset by a decrease in O&M and Packages. The increase in Services was

from all the Company’s industry segments, mainly in Mining & Metallurgy.

NOTABLE EVENTS RELATED TO ICI

> The Company acquired MEAP’s 23.08% ownership interest in AltaLink for a total consideration of $228.8 million in cash. The transaction

increased the Company’s ownership of AltaLink from 76.92% to 100%. AltaLink has technical expertise and extensive experience in

Alberta, Canada, where it owns and operates regulated transmission facilities, such as transmission lines and substations that serves

85% of Alberta’s population.

> Notable additions to ICI took place in 2011. The Company’s main additions were Société d’Exploitation de l’Aéroport de Mayotte S.A.S.

(“Mayotte”) and Rainbow Hospital Partnership (“Rainbow”).

BUSINESS ACQUISITIONS

> In 2011, SNC-Lavalin completed business acquisitions adding approximately 2,900 people to its workforce, including the acquisition of

certain assets of Atomic Energy of Canada Limited’s (“AECL”) commercial reactor division. Approximately 1,400 employees transitioned

from AECL to Candu Energy Inc., a wholly-owned subsidiary of SNC-Lavalin. The other business acquisitions were as follows:

• Interfl eet Technology, an international rail technology consultancy group headquartered in Derby, United Kingdom, adding approximately

600 employees;

• Arcturus Realty Corporation, which manages over 35 million square feet of offi ce, retail and industrial properties in Canada, adding

over 350 employees;

• Groupe Stavibel, a multidisciplinary consulting engineering fi rm based in Abitibi-Témiscamingue, Quebec, adding approximately

300 employees;

• MDH Engineered Solutions, an engineering consulting and research fi rm based in Saskatoon, Saskatchewan, adding approximately

175 employees;

• Aqua Data, a Canadian company specializing in the computerized diagnosis and analysis of water distribution systems and wastewater

collection systems for municipal, commercial and industrial clients, adding about 100 employees; and

• Harder Associates Engineering Consulting, an engineering consulting fi rm based in Fort St. John, British Columbia, adding 16 employees.




17

RETURN ON AVERAGE SHAREHOLDERS’ EQUITY (“ROASE”)

YEAR ENDED DECEMBER 31 2011 2010 2009

ROASE 19.3% 28.4% 27.3%

(1) In accordance with Canadian GAAP, refer to section 14.1 for more details.

> In 2011, ROASE signifi cantly surpassed the Company’s performance objective of 600 basis points above the long-term Canada Bond Yield,

which totalled 9.3% for the year.

DIVIDEND INCREASE

> On March 25, 2012, the Company’s Board of Directors approved a quarterly dividend of $0.22 per share, a 4.8% increase over the previous

quarterly dividend declared.

(1)




18

3 OVERVIEW OF OUR BUSINESS AND STRATEGY3.1 OUR BUSINESS

SNC-Lavalin is a leading international engineering and construction company, and a leader in O&M in Canada. The Company is also recognized

for its select investments in infrastructure concessions.

Engineering and construction expertise offered as Services or Packages, to clients in multiple industries:

› Infrastructure & Environment› Hydrocarbons & Chemicals (previously

referred to as Chemicals & Petroleum)› Mining & Metallurgy› Power› Other Industries (including agrifood,

pharmaceuticals and biotechnology, and sulphuric acid)

O&M activities performed to effi ciently manage clients’ facilities and assets, in various lines of business:

› Project, property & facility management

› Industrial› Transportation› Defence & logistics

Selectively invest in ICI that, in general, offer potential complementary engineering and construction, and/or O&M contract opportunities, with a fair return for SNC-Lavalin shareholders,such as:

› Airports› Bridges› Cultural and public service buildings› Mass transit systems› Power› Roads› Water

SNC-LAVALIN CONSISTS OF:A network of

offi ces located

across Canada and

in over 40 other

countries with

28,000 EMPLOYEES

working on over

10,000 PROJECTS

in some

100 COUNTRIES,

offering expertise

that meets

clients’ needs and

making selective

investments in

infrastructure

concessions

Hydrocarbons & Chemicals was previously referred to as Chemicals & Petroleum. As petroleum refers only to liquid crude oil, and not to

other hydrocarbon sectors such as liquefi ed natural gas, gas processing and gas-to-liquid, the new name better refl ects the Company’s full

range of activities.

SNC-Lavalin has more than 10,000 ongoing projects in multiple geographic regions and for multiple industry segments, showing the diversity

of the Company’s operations. The Company’s geographic and industry diversifi cation is one of the key factors that allows SNC-Lavalin to

differentiate itself from its competitors.




19

The diversity of the Company’s revenue base and its capacity to operate in different categories of activity, industry segments and geographic

areas are illustrated in the following 2011 revenue charts.

DIVERSITY OF THE COMPANY’S REVENUE BASE

2011 REVENUES ($7.2 BILLION)

Four activities that are complementary…

CATEGORIES OF ACTIVITY

…serving multiple industry segments…

INDUSTRY SEGMENTS

…with good geographic coverage and Canada as its largest base

GEOGRAPHIC AREAS

40%PACKAGES

27%INFRASTRUCTURE & ENVIRONMENT

15%HYDROCARBONS

& CHEMICALS

14%MINING &

METALLURGY

19%O&M

7%ICI

5%OTHER

INDUSTRIES

13%POWER

56%CANADA1%

OTHER REGIONS

3%ASIA PACIFIC

3%UNITED STATES

5%MIDDLE EAST

9%EUROPE

16%AFRICA

7%LATIN AMERICA

34%SERVICES

19%O&M

7%ICI

The diversity of the Company’s 28,000 employees workforce, illustrated below, allows it to maintain the diversity of its revenue base.

DIVERSITY OF THE COMPANY’S WORKFORCE

(NUMBER OF EMPLOYEES AS AT DECEMBER 31, 2011)

INFRASTRUCTURE & ENVIRONMENT

7,500HYDROCARBONS

& CHEMICALS

5,000

POWER

5,000MINING &

METALLURGY

4,500

O&M

4,000OTHER

INDUSTRIES AND ICI

2,000




20

3.2 OUR BUSINESS STRATEGY

SNC-Lavalin’s business strategy is founded on a strategic vision:

BE THE WORLD’S FOREMOST DIVERSIFIED PROVIDER OF SUSTAINABLE ENGINEERING

AND CONSTRUCTION SOLUTIONS DELIVERED LOCALLY

The following seven strategic priorities are the pillars on which the Company’s strategic vision rests. Focusing on these priorities ensures

that SNC-Lavalin continues to grow and be successful by serving the needs of its clients, employees, shareholders and the communities

where it is active.

STRATEGIC PRIORITIES KEY IMPLICATIONS

Operational excellence

Successful project delivery is at the heart of achieving operational excellence which is required for

SNC-Lavalin to retain the trust of its clients, existing and new. Successful project delivery includes fi rst and

foremost exceeding targets for health and safety performance, budget, schedule, quality of work, and overall

client satisfaction.

Improve competitiveness

A focus on cost-effi ciency and product differentiation, supported by strong capabilities and experience, will

be key to ensuring that the Company is consistently selected by clients as their partner of choice on projects.

Stronger relationships with clients

Creating strong relationships with clients will ensure that SNC-Lavalin becomes a true partner to its clients.

Geographic diversifi cation and growth of markets and offerings

Expansion of geographic, product and sector coverage will be an important component in accessing new

markets where the Company can continue its growth trajectory. The ability to deliver local projects using

local resources will be a key component in delivering the geographic growth strategy.

Build sustainable people and organisational capabilities

Through strong leadership and talent development, the Company will continue to identify and groom its

future leaders, and strengthen employee engagement.

Financial strength and fl exibility

Maintaining a strong fi nancial position is important not only for the Company’s shareholders and credit

providers but also to provide its clients with the knowledge that it is able to maintain stability while

delivering projects it undertakes on their behalf. It also allows the Company to seize strategic business

opportunities and investments in infrastructure concessions.

Corporate social responsibility

The Company has deep respect for its social obligations and will act, and be known, as a socially

responsible company. This includes engaging itself with the broader community wherever the work

is performed.




21

4 HOW WE ANALYZE AND REPORT OUR RESULTS4.1 RESULTS BY CATEGORY OF ACTIVITY

The Company reports its results under four categories of activity, which are Services and Packages (together these regroup activities from

engineering and construction), O&M, and ICI. The Company regularly analyzes the results of these categories independently as they generate

different gross margin yields and have different risk profi les.

4.1.1 SERVICES ACTIVITIESServices revenues are derived primarily from cost-plus reimbursable contracts and include contracts wherein SNC-Lavalin provides

engineering services, feasibility studies, planning, detailed design, contractor evaluation and selection, project and construction management,

and commissioning. Services revenues from individual contracts are typically lower than those of Packages activities, which are discussed

below, as they mainly refl ect the professional services rendered and not the cost of the materials, equipment and/or construction. Services

activities have historically generated a gross margin yield between 25% and 29%. Services contracts that provide for engineering, procurement

and construction management are referred to as “EPCM” contracts.

4.1.2 PACKAGES ACTIVITIESPackages activities are different from Services activities in that the Company is responsible not only for providing one or more Services

activities, but also undertakes the responsibility for providing materials and equipment, and usually also include construction activities.

In particular, Packages contracts that include engineering services, providing materials and equipment, and construction activities are referred

to as “EPC” contracts. Packages revenues are derived primarily from fi xed-price contracts. As such, Packages revenues include the cost of

materials, equipment and, in most cases, construction activities. The Company’s Packages activities aim to generate a gross margin yield

between 7% and 10%.




22

UNDERSTANDING THE DIFFERENCE BETWEEN AN EPCM CONTRACT (SERVICES) AND AN EPC CONTRACT (PACKAGES)

Example 1 assumes that the client has awarded a $10 million EPCM contract to SNC-Lavalin for a project with an estimated capital cost of $100 million, and that the project generates a gross margin-to-revenue ratio of 27%, in line with the Company’s historical range of gross margin yield for Services activities. The nominal gross margin generated on this project would be $2.7 million on revenues of $10 million. In this example, revenues generated from the EPCM contract, which would be included under the Services revenues category over the period the services are rendered, are assumed to be 10% of the capital cost of the project. The latter percentage could vary from one project to another.

EXAMPLE 1 — EPCM SERVICES CONTRACT

(IN MILLIONS OF CANADIAN DOLLARS)

Services:Total revenues $ 10.0Total gross margin $ 2.7Gross margin-to-revenue ratio 27%

Example 2 assumes that the client has awarded SNC-Lavalin a $100 million fi xed-price EPC contract (i.e., corresponding to the project’s capital cost). The Company will recognize the following results over the life of the project based on the percentage of completion method, assuming that the project generates a gross margin-to-revenue ratio of 9%, in line with the Company’s target range of gross margin yield for Packages activities.

EXAMPLE 2 — EPC PACKAGES CONTRACT

(IN MILLIONS OF CANADIAN DOLLARS)

Packages:Total revenues $ 100.0Total gross margin $ 9.0Gross margin-to-revenue ratio 9%

The higher nominal gross margin generated under Example 2 (i.e., $9.0 million) compared to Example 1 (i.e., $2.7 million) refl ects the additional risks assumed by the Company related to fi xed-price Packages contracts, which are exposed to cost-overruns and other fi nancial performance responsibilities.

4.1.3 O&M ACTIVITIESThe Company provides operations, maintenance and logistics solutions for buildings, power plants, water supply and treatment systems,

desalination plants, postal services, broadcasting facilities, highways, bridges, light rail transit systems, airports, ships, and camps for

construction sites and the military. O&M revenues are derived primarily from cost-reimbursable with fi xed-fee contracts, and from fi xed-price

contracts. O&M activities usually involve a high volume of transactions, which are mainly cost-reimbursable by the client, and therefore

result in a lower gross margin-to-revenue ratio than Services and Packages activities. O&M activities have historically generated a gross

margin yield between 3% and 5%.

4.1.4 ICI ACTIVITIESThe Company’s ICI are typically infrastructure for public services, such as airports, bridges, cultural and public service buildings, power, mass transit systems, roads and water. These types of infrastructure are commonly provided by government-owned entities, however, many

countries are now turning to the private sector to take ownership, fi nance, operate and maintain the assets, usually for a defi ned period of

time. These public-private partnership arrangements allow for the transfer to the private sector of many of the risks associated with designing,

building, operating, maintaining and fi nancing such assets. In return, the government will either: i) commit to making regular payments, usually in

the form of availability payments, upon the start of operations of the infrastructure for a defi ned period of time (typically 20 to 40 years);

ii) authorize the infrastructure concession entity to charge users of the infrastructure for a defi ned period of time; or iii) a combination of both.




23

ICI revenues are generated mainly from dividends or distributions received by SNC-Lavalin from the investment concession entities, or from all

or a portion of an investment concession entity’s net results or revenues, depending on the accounting method required by IFRS, summarized

in section 4.1.4.2.

For SNC-Lavalin, a typical structure when investing in a “greenfi eld” infrastructure concession (meaning that the infrastructure needs to be

built, as there is none on the site) is illustrated below:

OW

NER

SHIP

SNC-Lavalin

O&M DivisionEngineering & Construction Divisions

Partners(IF SNC-LAVALIN IS NOT 100% EQUITY OWNER)

CO

NC

ESSI

ON

A

GR

EEM

ENT

AN

D F

INA

NC

ING

ENG

INEE

RIN

G &

C

ON

STR

UC

TIO

N, A

ND

O

&M

CO

NTR

AC

TS

Investment Concession Entities

RESPONSIBLE FOR

DESIGNING AND BUILDING

OF NEW INFRASTRUCTURE,

O&M, AND FINANCING

ClientUSUALLY

GOVERNMENT-

OWNED ENTITY

Project Lenders

LONG-TERM DEBT

(NON-RECOURSE TO

EQUITY INVESTORS)

FIXED-PRICE CONTRACT, USUALLY FOR A

CONSTRUCTION PERIOD OF 2 TO 3 YEARS

EQUITY INVESTMENT

LONG-TERM ARRANGEMENT

(CONCESSION AGREEMENT)

AVAILABILITY PAYMENT OR

AUTHORITY TO CHARGE

USERS A FEE FOR SERVICE,

OR A COMBINATION OF BOTH

COST-REIMBURSABLE WITH FIXED-FEE CONTRACT OR

FIXED-PRICE CONTRACT, USUALLY FOR THE DURATION OF

THE CONCESSION (USUALLY 20 TO 40 YEARS)

The investment is expected to provide an internal rate of return refl ective of the responsibilities being assumed under a long-term arrangement with the client;

The investment gives SNC-Lavalin the opportunity to provide complementary engineering and construction, and/or O&M activities;

SNC-Lavalin has an established technical base in the country;

SNC-Lavalin has an understanding of any applicable regulatory framework; and

Financing is available through long-term non-recourse debt secured by the ICI’s specifi c assets.

TYPICALLY, SNC-LAVALIN WILL BE INTERESTED IN INVESTING IN AN

ICI WHEN:

Historically, the Company invested primarily in concessions for “greenfi eld” projects, meaning that the infrastructure still needs to be built,

as there is none on the site. Those projects provide opportunities for SNC-Lavalin to undertake Services, Packages, and/or O&M activities. While

the Company’s strategy for ICI is to focus mainly on “greenfi eld” projects, SNC-Lavalin may also participate in more concession investments

for “brownfi eld” projects, where the infrastructure is already built and operational, provided it generates a fair return on investment and has

a strategic value for SNC-Lavalin.




24

4.1.4.1 ACCOUNTING MODELS USED BY CONCESSION ENTITIES

Certain of the Company’s ICI that are public-private partnership arrangements qualify for accounting under IFRIC Interpretation 12, Service Concession Arrangements, (“IFRIC 12”), which provides guidance on the accounting for such arrangements, whereby the grantor (i.e., usually

a government):

> controls or regulates what services the operator (i.e., “the concessionaire”) must provide with the infrastructure, to whom it must provide

them, and at what price; and

> controls any signifi cant residual interest in the infrastructure at the end of the term of the arrangement.

The contractual arrangement between the government and the concessionaire is referred to as a “concession agreement”, under which the

government specifi es the responsibilities of the concessionaire and governs the basis upon which the concessionaire will be remunerated.

The concessionaire is usually responsible for the construction of the infrastructure, its O&M and its rehabilitation, and is usually paid by the

government, the users, or both. In certain cases, the concessionaire can receive payments from the government during the initial construction

phase. At the end of the term of a concession agreement, the infrastructure is returned to the government, often for no additional consideration.

Here are the accounting models used by concession entities, depending if the concession agreement is subject, or not, to IFRIC 12:

SUBJECT TO IFRIC 12Under IFRIC 12, the concessionaire accounts for the infrastructure asset depending on the allocation of the demand risk between the

government and the concessionaire, as follows:

NOT SUBJECT TO IFRIC 12

If the concessionaire does not bear demand risk through the

usage of the infrastructure

If the concessionaire bears demand risk

If the concessionaire and the government share the

demand risk ICI outside the scope of application of IFRIC 12 apply

an accounting model based on specifi c facts and

circumstances, in accordance with other IFRS

Financial asset model Intangible asset model Bifurcated model

The following Company’s ICI were identifi ed as being within the scope of IFRIC 12:

FINANCIAL ASSET MODEL

INTANGIBLE ASSET MODEL BIFURCATED MODEL

Chinook Roads Partnership

Groupe Immobilier Santé McGill

InTransit BC Limited Partnership

Okanagan Lake Concession Limited Partnership

Ovation Real Estate Group (Quebec) Inc.

Rainbow Hospital Partnership

Rayalseema Expressway Private Limited

Société d’Exploitation de l’Aéroport de Mayotte S.A.S.

TC Dôme S.A.S.




25

The table below highlights the main characteristics of the accounting of a concession by the Company under the fi nancial asset model, which

is used for most of the Company’s ICI under IFRIC 12:

Impact on the Company’s consolidated statement of fi nancial position

Revenues recognized by the Company under the fi nancial asset model are accumulated in a fi nancial asset, named “Receivables under service concession arrangements”, a fi nancial asset that is recovered through payments received from the grantor

Impact on the Company’s consolidated income statement

> Recognition of EPC Revenue; and> Cost from EPC contractor

> Recognition of O&M Revenue; and> Cost from O&M contractor

Recognition of fi nancial income from the fi nancial asset, using the effective interest method, which is classifi ed as revenue from ICI

Borrowing costs from the debt

The following ICI are not subject to IFRIC 12: AltaLink, Highway 407, Astoria Project Partners LLC, Astoria Project Partners II LLC,

Malta International Airport p.l.c., Myah Tipaza S.p.A., Société d’Exploitation de Vatry Europort S.A. and Shariket Kahraba Hadjret En Nouss S.p.A.

4.1.4.2 ACCOUNTING METHODS FOR THE COMPANY’S INVESTMENTS IN CONCESSION ENTITIES

For the purposes of the Company’s audited annual consolidated fi nancial statements, SNC-Lavalin’s Infrastructure Concession Investments

(“ICI”) are accounted for as follows:

ACCOUNTING METHOD APPLIED BY SNC-LAVALIN FOR ITS INVESTMENTS IN ICI, DEPENDING ON THE TYPE OF INFLUENCE EXERCISED

ON THE CONCESSION ENTITIES

Non-signifi cant infl uence Signifi cant infl uence Joint control Control

Cost method Equity method Equity method Full consolidation method




26

Revenues from ICI regroup the following:

ACCOUNTING METHODS FOR THE COMPANY’S INVESTMENTS IN ICI REVENUES INCLUDED IN THE COMPANY’S CONSOLIDATED INCOME STATEMENT

Full consolidation Revenues that are recognized and reported by the ICI

Equity method SNC-Lavalin’s share of net results of the ICI or dividends from ICI for which the carrying amount is $nil

Cost method Dividends and distributions from the ICI

4.1.4.3 ADDITIONAL FINANCIAL INFORMATION ON ICI TO BETTER UNDERSTAND OUR FINANCIAL STATEMENTS

The Company’s consolidated statement of fi nancial position includes the line by line impact of ICI that are fully consolidated. Unlike Services,

Packages, and O&M activities, ICI are often capital intensive due to the ownership of infrastructure assets that are fi nanced mainly with

project-specifi c debt, which is non-recourse to the general credit of the Company.

In order to provide the reader with a better understanding of the fi nancial position and results of operations of its ICI, the Company provides

additional information on its ICI in its audited annual consolidated fi nancial statements, as follows:

Consolidated statement of fi nancial position

> Property and equipment from ICI controlled by the Company;> The net book value of ICI accounted for by the equity or cost methods;> Non-recourse debt from ICI controlled by the Company

Consolidated statement of cash fl ows For the ICI controlled by the Company:> Depreciation and amortization from ICI, and acquisition of property and equipment

from ICI; > Repayment and increase of non-recourse debt from ICI

Notes to the annual consolidated fi nancial statements

> Main accounts of the statement of fi nancial position impacted by ICI controlled by the Company are shown on separate lines in Note 5;

> The net income attributable to SNC-Lavalin shareholders from ICI;> Certain other notes will provide information regarding ICI separately from other activities

In certain parts of this MD&A, activities from Services, Packages, and O&M are collectively referred to as “from other activities” or “excluding

ICI” to distinguish them from ICI activities.

4.2 RESULTS BY SEGMENT USED FOR ACCOUNTABILITY

The Company’s results are analyzed by segment. The segments regroup related activities within SNC-Lavalin consistent with the way management’s performance is evaluated. Accountability for the Company’s performance rests with members of senior management,

wherein a portion of their remuneration is based on the profi tability of their respective business segments, as well as their individual objectives

and on the Company’s overall fi nancial performance.




27

4.3 HOW WE BUDGET AND FORECAST OUR RESULTS

The Company prepares a formal annual budget (“Annual Budget”) in the fourth quarter of each year, which is the basis of the Company’s

fi nancial outlook.

PROJECT LEVEL DIVISIONAL LEVEL CONSOLIDATED LEVEL BOARD OF DIRECTORS

The budget information is prepared for individual

projects and/or prospects, which will form the primary

basis for the Company’s consolidated Annual Budget

The project information is then compiled by each

division and approved by the Company’s

divisional management

The divisional budgets are subsequently reviewed by the Company’s senior executives

Final approval is provided by the Board of Directors

in the fourth quarter of the current year

The Annual Budget is a key tool used by management to monitor the Company’s performance and progress against key fi nancial objectives.

Furthermore, the fi gures set in the Annual Budget have an impact on management’s compensation, as these fi gures are used in determining

part of their performance bonus. The Annual Budget is updated during the year to refl ect current information as the Company prepares

forecasts of its annual expected results in the fi rst, second and third quarters (“Quarterly Forecasts”), which are presented to the Board of

Directors. In addition, the performance of each individual project (i.e., its estimated revenues and costs to complete) is continuously reviewed

by its respective project manager and, depending on the size and risk profi le of the project, by key management personnel, including the

divisional manager, the business segment executive vice-president, the Chief Financial Offi cer and the Chief Executive Offi cer.

The key elements taken into account when estimating revenues and gross margin for budget and forecast purposes from Services, Packages

and O&M activities are the following:

KEY ELEMENTS IMPACT ON THE ANNUAL BUDGET

Backlog Firm contracts used to estimate a portion of future revenues taking into account the execution and expected performance of each individual project

Prospects list Unsigned contracts that the Company is currently bidding on, and/or future projects for which it intends to bid. For prospects, the Company applies, on the value of a contract, what is referred to as a “Go-Get Percentage”, which is the product of the expectation that the client will go forward with the contract (i.e., “Go”), and the probability that it will be awarded to the Company (i.e., “Get”)

Execution and expected performance Revenues and costs (or execution) of projects are determined on an individual project basis, and take into consideration assumptions on risks and uncertainties that can have an impact on the progress and/or profi tability of that project, such as, but not limited to, performance of the Company’s employees and of subcontractors or equipment suppliers, as well as price and availability of labour, equipment and materials

Budgeted and forecasted selling, general and administrative expenses, net fi nancial expenses, and income tax expense are derived from

detailed analysis and are infl uenced by the level of anticipated activities and profi tability.

In regards to its ICI budget and forecast, expected results based on assumptions specifi c to each investment are used.




28

One of the key management tools for monitoring the Company’s performance is the monthly evaluation and analysis of actual results

compared to the Annual Budget or the Quarterly Forecasts, for revenues, gross margin and profi tability. This enables management to analyze

its performance and, if necessary, take remedial actions. Variations from plan may arise mainly from the following:

SOURCE OF VARIATION EXPLANATION

Level of activity for Services, Packages and O&M

Variation depends on the number of newly awarded, ongoing, completed or near-completed projects, and on the progress made on each of these projects in the period. The revenue mix between the categories of activity will also affect, among other elements, the gross margin of the Company

Changes in the estimated revenues and/or costs to complete each individual project (“reforecasts”)

Variation of the estimated costs to complete projects for fi xed-price contracts result in either a positive or negative impact to a project’s results. Increases or decreases in profi tability for any given fi xed-price project are largely dependent on project execution

Changes in the results of its ICI Variation in the fi nancial results of each ICI will impact the fi nancial results of the Company. Additions to the Company’s ICI portfolio, or divestitures from it, can also impact the Company’s results

4.4 HOW THE COMPANY IS GENERALLY VALUED

The Company is generally valued based on the nature of its business, and, as such, most fi nancial analysts and investors who monitor the

Company’s performance estimate its fair value as the sum of the following three components:

The value of this component is calculated based on a price/earnings multiplier applied to consolidated net income attributable to SNC-Lavalin shareholders excluding the Company’s net income attributable to SNC-Lavalin shareholders from its ICI and its interest income, net of tax, from freehold cash. For this purpose, the Company discloses as supplementary information its net income attributable to SNC-Lavalin shareholders excluding ICI, as well as the amount of freehold cash, on which the average yield earned was 0.90% and 0.58% before taxes, in 2011 and 2010, respectively.

The fair value of each ICI is calculated using: i) a discounted expected future cash fl ow methodology; ii) the price of the latest transaction involving shares of an ICI not traded on an active market; or iii) the stock market bid price for shares of an ICI that is traded on an active market. All these approaches are more relevant than a price/earnings methodology. The Company estimates that the fair value of its ICI is higher than its book value of $1.4 billion at December 31, 2011.

The amount of cash and cash equivalents not committed for the Company’s operations or investments in infrastructure concessions, which amounted to approximately $750 million as at December 31, 2011, compared to approximately $900 million as at December 31, 2010 (refer to section 10.2 of this report).

VALUE OF SNC-LAVALIN ICI

Engineering & Construction,

excluding ICI and freehold cash

Freehold cash




29

It should be noted that, although this methodology is used by most of the fi nancial analysts and investors who monitor the Company’s

performance, it is not the only way to estimate the Company’s fair value. The description of this methodology is intended to provide the

reader with a better understanding of how the market generally evaluates the fair value of the Company and to help the reader understand

why management discloses certain fi nancial information throughout this MD&A and its audited annual consolidated fi nancial statements.

4.5 NON-IFRS FINANCIAL MEASURES

Some of the indicators used by the Company to analyze and evaluate its results represent non-IFRS fi nancial measures. Consequently, they

do not have a standardized meaning as prescribed by IFRS, and therefore may not be comparable to similar measures presented by other

issuers. Management believes that these indicators provide useful information because they allow for the evaluation of the performance of

the Company and its components based on various aspects, such as past, current and expected profi tability and fi nancial position.

The non-IFRS fi nancial measures include the following indicators:

NON-IFRS FINANCIAL MEASURE REFERENCE NON-IFRS FINANCIAL MEASURE REFERENCE

Performance Liquidity

Gross margin by category of activity Section 6.2 Net cash position Section 10.2

Revenue backlog Section 7 Freehold cash Section 10.2

Booking-to-revenue ratio Section 7 Working capital Section 10.4

Operating income by segment Section 9 Recourse debt-to-capital ratio Section 10.6

ROASE Section 10.10

Defi nitions of all non-IFRS fi nancial measures are provided in the referenced sections above to give the reader a better understanding of the

indicators used by management and, when applicable, the Company provides a clear quantitative reconciliation from the non-IFRS fi nancial

measures to the most directly comparable measure calculated in accordance with IFRS.




30

5 OUR KEY FINANCIAL PERFORMANCE INDICATORSTo enable the Company to continuously strive to create value for its shareholders it regularly evaluates its overall performance using key

fi nancial indicators, namely:

> Net income attributable to SNC-Lavalin shareholders, which is used by the Company to evaluate its profi tability and communicate its

growth objective, as the Company focuses on net income growth as opposed to revenue growth;

> ROASE, which is used as a measure of return on equity; and

> Net cash position, which is a key indicator of the Company’s fi nancial capability.

The following table presents a summary of the Company’s key fi nancial performance indicators and compares the results achieved as at or

for the years ended December 31, 2011, 2010 and 2009, with the Company’s corresponding fi nancial objectives.

KEY FINANCIAL INDICATORS

FINANCIAL INDICATOR FINANCIAL OBJECTIVE ACTUAL RESULTS

2011 2010 2009

Growth (decrease) in net income

attributable to SNC-Lavalin shareholders Annual growth between 7% and 12% (20.5%) 21.6% (2) 15.0%

ROASE At least equal to long-term Canada

Bond Yield plus 600 basis points

(totalling 9.3% for 2011, 9.8% for 2010

and 9.9% for 2009) 19.3% 28.4% 27.3%

Net cash position (cash and cash

equivalents less cash and cash equivalents

from ICI and recourse debt)

Maintain a strong fi nancial position

with a net cash position suffi cient to

meet expected operating, fi nancing and

investing plans $851.7M $870.1M $722.9M

IN LINE OR ABOVE FINANCIAL OBJECTIVE

BELOW FINANCIAL OBJECTIVE


(2) Growth in net income based on 2009 and 2010 fi gures prepared in accordance with Canadian GAAP.

Net income attributable to SNC-Lavalin shareholders in 2011 decreased by 20.5% to 378.8 million ($2.49 per share on a diluted basis),

compared to $476.7 million ($3.13 per share on a diluted basis) in 2010. While the Company expected its 2011 net income to remain in line

with 2010 when excluding the gains from the disposals of certain assets and investments recognized in 2010, it decreased by 12.1% when

excluding such gains.

The 2011 ROASE of 19.3% exceeded the Company’s objective for the year of 9.3%, refl ecting a solid performance. The Company was able to

achieve such signifi cant ROASE while maintaining a strong cash position ($1.2 billion of cash and cash equivalents at December 31, 2011).

In 2011, an average yield of 0.90% before taxes was obtained on its cash and cash equivalents, as interest rates remained at low levels.

The Company’s net cash position of $851.7 million as at December 31, 2011 is representative of its solid fi nancial position, which allows the

Company to meet expected operating, investing and fi nancing plans.

(1)




31

6 BREAKDOWN OF INCOME STATEMENT

$7.2billion

REVENUES

$1.3billion

GROSS MARGIN

$378.8million

NET INCOME ATTRIBUTABLE TO SNC-LAVALINSHAREHOLDERS

IFRS CANADIAN GAAP

YEAR ENDED DECEMBER 31 (IN MILLIONS OF CANADIAN DOLLARS, EXCEPT EARNINGS PER SHARE) 2011 2010 2010 2009

Revenues by activity:Services $ 2,437.8 $ 2,053.8 $ 2,051.9 $ 2,221.4

Packages (2) 2,871.5 2,137.4 2,409.0 2,202.2

O&M 1,399.2 1,330.4 1,330.5 1,297.9

ICI (3) 501.4 472.3 523.6 380.2

$ 7,209.9 $ 5,993.9 $ 6,315.0 $ 6,101.7

Gross margin by activity:Services $ 592.5 24.3% $ 543.0 26.4% $ 539.2 26.3% $ 562.7 25.3%

Packages 301.9 10.5% 434.2 20.3% 448.2 18.6% 357.4 16.2%

O&M 78.4 5.6% 59.6 4.5% 59.7 4.5% 50.1 3.9%

ICI 279.3 55.7% 264.2 55.9% 284.6 54.4% 180.9 47.6%

$ 1,252.1 17.4% $ 1,301.0 21.7% $ 1,331.7 21.1% $ 1,151.1 18.9%

Selling, general and administrative expenses 654.7 581.7 585.6 545.6

Net fi nancial expenses:From ICI 99.7 85.1 151.8 112.2

From other activities 15.5 26.0 23.1 16.0

115.2 111.1 174.9 128.2

Income before income tax expense 482.2 608.2 571.2 477.3

Income tax expense 94.9 120.8 123.4 108.2

Non-controlling interests – – 10.8 9.7

Net income $ 387.3 $ 487.4 $ 437.0 $ 359.4

Net income attributable to:SNC-Lavalin shareholders $ 378.8 $ 476.7 $ 437.0 $ 359.4

Non-controlling interests 8.5 10.7 – –

Net income $ 387.3 $ 487.4 $ 437.0 $ 359.4

Earnings per share ($)Basic $ 2.51 $ 3.16 $ 2.89 $ 2.38

Diluted $ 2.49 $ 3.13 $ 2.87 $ 2.36

(1) Refer to section 14.1 for more details on transition from Canadian GAAP to IFRS.

(2) Including the gain on disposal of certain technology solution assets of $22.8 million before taxes in 2010.

(3) Including the net gain before taxes of $29.6 million from the disposals of Trencap and Valener in 2010.

(1)

(2) (2)

(3) (3)




32

6.1 NET INCOME ANALYSIS

IFRS CANADIAN GAAP

YEAR ENDED DECEMBER 31 (IN MILLIONS OF CANADIAN DOLLARS) 2011 2010 2010 2009

Net income attributable to SNC-Lavalin shareholders from ICI:

From a net gain on disposal of Trencap and Valener (2) $ – $ 26.1 $ 26.1 $ –

Excluding the net gain on disposal of Trencap and Valener 131.2 108.8 56.8 36.9

Net income attributable to SNC-Lavalin shareholders from ICI 131.2 134.9 82.9 36.9

Net income attributable to SNC-Lavalin shareholders excluding ICI:

From a gain on disposal of certain technology solution assets (3) – 19.6 19.6 –

Excluding the gain on disposal of certain technology solution assets 247.6 322.2 334.5 322.5

Net income attributable to SNC-Lavalin shareholders excluding ICI 247.6 341.8 354.1 322.5

Net income attributable to SNC-Lavalin shareholders $ 378.8 $ 476.7 $ 437.0 $ 359.4

(1) Refer to section 14.1 for more details on transition from Canadian GAAP to IFRS.

(2) In 2010, SNC-Lavalin sold all of its interests in Trencap and Valener (Note 5B to the Company’s 2011 audited annual consolidated fi nancial statements).

The transactions resulted in a net gain after taxes of $26.1 million included in ICI in 2010.

(3) In 2010, SNC-Lavalin concluded an agreement with a third-party to dispose of certain technology solution assets that help manage and optimize the fl ow of

electricity through power grids. The transaction generated a gain before taxes of $22.8 million included in Packages activities, under Power, resulting in a gain

after taxes of $19.6 million included in net income attributable to SNC-Lavalin shareholders excluding ICI in 2010.

The analysis that follows is for 2011, 2010 and 2009. The Company did not restate its 2009 fi nancial information in accordance with IFRS. Accordingly, the analysis of the variance between 2010 and 2009, in the present MD&A, are based on fi gures determined in accordance with Canadian GAAP for both 2009 and 2010.

While the Company expected net income attributable to SNC-Lavalin shareholders to remain in line in 2011 compared to 2010, excluding the gains mentioned above, it decreased, mainly refl ecting a lower net income attributable to SNC-Lavalin shareholders excluding ICI.

The increase in net income in 2010 compared to 2009 was due to the growth in net income in both ICI and excluding ICI.

While the Company expected net income attributable to SNC-Lavalin shareholders excluding ICI in 2011 to remain in line with 2010, excluding the 2010 gain mentioned above, it decreased, mainly refl ecting a lower gross margin-to-revenue ratio, primarily in Packages, partially offset

by a higher level of activity. The net income increased in 2010 compared to 2009, mainly due to an increase in the gross margin-to-revenue

ratio and volume of Packages activities, partially offset by a lower level of Services activity. The Company’s gross margin-to-revenue ratio

for its Packages activities surpassed its target range for the second consecutive year. This was mainly due to the favourable reforecasts on

certain major projects, as well as to the gain of $22.8 million before taxes on disposal of certain technology solution assets.

While the Company expected net income attributable to SNC-Lavalin shareholders from ICI to remain in line in 2011 compared to 2010,

excluding the 2010 net gain after taxes of $26.1 million from the disposal of Trencap and Valener, it increased. The increase was mainly

due to higher dividends from Highway 407, as well as a higher contribution from AltaLink, partially offset by the absence of contributions

in 2011 from the Company’s investments in Trencap and Valener, which were sold in the fourth quarter of 2010. Net income from ICI increased

in 2010 compared to 2009, refl ecting the net gain after taxes of $26.1 million from the disposals of Trencap and Valener, as well as an

increased contribution from Shariket Kahraba Hadjret En Nouss S.p.A. (“SKH”), refl ecting its fi rst full year of operations in 2010 compared

to six months of operations in 2009.

As announced in a press release dated February 28, 2012, in the fourth quarter of 2011, the Company recognized a net loss of $35 million

related to payments made in the fourth quarter of 2011, under what are presumed to be agency agreements (refer to section 1.1 “Recent

Developments – Independent Review”). In addition, the Company’s 2010 results were adjusted by reducing net income by $17.9 million to

refl ect the impact of payments of $20 million made in 2010, made under what is presumed to be an agency agreement. The Company decided

to correct its prior period comparative fi nancial information in its fi rst issuance of annual audited consolidated fi nancial statements prepared

in accordance with IFRS (refer to section 1.1 “Recent Developments – Independent Review” and section 14.1 “First-Time Adoption of IFRS”).

(1)




33

6.2 REVENUE AND GROSS MARGIN ANALYSIS

As expected, revenues increased in 2011 compared to 2010. All the Company’s categories of activity increased, with most of the increase

from Packages and Services. The increase in 2010 compared to 2009 mainly refl ected an increase in Packages and ICI activities, partially

offset by a lower level of Services activity.

While the Company expected gross margin in 2011 to remain in line with 2010, it decreased, mainly refl ecting a lower gross margin-to-revenue

ratio, partially offset by a higher level of activity. The increase in gross margin in 2010, compared to 2009, mainly refl ected an increase in

the gross margin-to-revenue ratio for all categories of activity combined with a higher level of Packages activity, partially offset by a lower

level of Services activity.

6.2.1 SERVICES REVENUES AND GROSS MARGINAs expected, services revenues increased in 2011 compared to 2010. The increase is from all the Company’s industry segments, notably

Mining & Metallurgy.

From 2007 to 2010, Services activities sustained a gross margin-to-revenue ratio between 25% and 29%. In 2011, the gross margin-to-revenue

ratio was below the historical range, mainly due to lower gross margins on certain major projects.

SERVICES REVENUES AND GROSS MARGIN(IN MILLIONS CA$)

Services revenues

GM-to-revenue ratio

07 08 09 10 11

1,726.1

2,305.4 2,221.42,053.8

2,437.8

28.5%29.4%

25.3%26.4%

24.3%

The fi gures for 2007 to 2009 are in accordance with Canadian GAAP, refer to section 14.1 for more details.

As expected, Services gross margin increased in 2011 compared to 2010, primarily refl ecting a higher level of activity, notably in Mining

& Metallurgy, partially offset by a lower gross margin-to-revenue ratio, primarily in Mining & Metallurgy, and Hydrocarbons & Chemicals.




34

6.2.2 PACKAGES REVENUES AND GROSS MARGINAs expected, Packages revenues increased in 2011 compared to 2010. The increase is from all the Company’s industry segments,

notably Power.

Packages activities decreased from 2007 to 2010, as some major projects were completed or nearing completion in 2008 and 2009.

The decrease was followed by an increased level of activity in 2011. The Company targets a gross margin-to-revenue ratio between 7% and 10%

for Packages activities. However, as illustrated in the table below, this ratio was lower than this range for 2007 and 2008, mainly due to

a lower gross margin-to-revenue ratio in Power. In 2009 and 2010, the target range was surpassed, mainly due to favourable reforecasts on

certain major projects, while the target range was slightly surpassed in 2011.

PACKAGES REVENUES AND GROSS MARGIN(IN MILLIONS CA$)

Packages revenues

GM-to-revenue ratio

07 08 09 10 11

3,635.7

3,229.5

2,202.2 2,137.4

2,871.5

(3.3%)

4.0%

16.2%

20.3%

10.5%


As expected, gross margin for Packages decreased in 2011 compared to 2010. The decrease was mainly due to a lower gross margin-

to-revenue ratio, mainly in Infrastructure & Environment, and Power, partially offset by a higher level of activity, notably in Power. It is

noteworthy to mention that the 20.3% gross margin-to-revenue ratio for Packages in 2010 was above the Company’s target range of 7% to 10%.




35

6.2.3 O&M REVENUES AND GROSS MARGINAs expected, O&M revenues increased in 2011 compared to 2010, due to a higher volume of activity.

As illustrated in the table below, O&M activities have increased steadily over the past fi ve years. From 2007 to 2010, the gross margin-to-revenue

ratio varied between the historical range of 3% to 5%, while it was surpassed in 2011:

O&M REVENUES AND GROSS MARGIN(IN MILLIONS CA$)

O&M revenues GM-to-revenue ratio

07 08 09 10 11

1,058.4

1,225.01,297.9 1,330.4

1,399.2

4.6%

3.6%

3.9%

4.5%

5.6%


As expected, O&M gross margin increased in 2011 compared to the previous year, mainly refl ecting a higher gross margin-to-revenue ratio

on certain ongoing contracts.

6.2.4 ICI REVENUES AND GROSS MARGINThe relationship between revenues and gross margin for ICI activities is not meaningful, as a signifi cant portion of the investments are

accounted for under either the equity or cost methods, which do not refl ect the line by line items of the individual ICI’s fi nancial results.

Management relies on net income attributable to SNC-Lavalin shareholders from ICI as a key indicator when assessing and evaluating

the results of its ICI. The analysis presented and discussed in the present section is to provide a better understanding of the gross margin

generated from ICI to the reader.

While the Company expected its 2011 ICI revenues to remain in line with 2010, it increased, mainly due to higher revenues from AltaLink and

higher dividends from Highway 407, partially offset by the net gain before taxes of $29.6 million from the disposals of Trencap and Valener in

2010, and by the absence of contributions in 2011 from the Company’s investments in Trencap and Valener, which were sold in the fourth quarter

of 2010. Gross margin increased in 2011 compared to 2010, mainly for the same reasons with respect to the revenues increase outlined above.




36

As illustrated in the table below, the Company’s gross margin from ICI has nearly doubled over the past fi ve years, mainly refl ecting the

growth from AltaLink and Highway 407 in the past years coupled with the commencement of operations of Okanagan Lake Concession

in 2008 and SKH in 2009, as well as the net gain from the disposals of Trencap and Valener in 2010.

ICI GROSS MARGIN(IN MILLIONS CA$)

07 08 09 10 11

145.4161.2

180.9

264.2279.3


6.3 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ANALYSIS

(IN MILLIONS OF CANADIAN DOLLARS) 2011 2010 CHANGE (%)

Selling costs $ 191.3 $ 168.2 13.7%

General and administrative expenses 463.4 413.5 12.1%

Selling, general and administrative expenses $ 654.7 $ 581.7 12.5%

As expected, Selling, general and administrative expenses increased in 2011 compared to 2010, mainly due to selling, general and

administrative expenses of $44.6 million from businesses recently acquired, as well as a higher volume of activity.

As cost management remains a strategic priority, the Company continues to maintain an appropriate balance between gross margin and selling,

general and administrative expenses, while sustaining the necessary investment in selling activities in order to achieve its growth objective.




37

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES(IN MILLIONS CA$)

GM Selling, general and administrative expenses as a percentage of total gross margin

07 08 09 10 11

565.3

1,012.9

1,151.1

1,301.01,252.1

69.5%

50.9%47.4%

44.7%

52.3%


6.4 NET FINANCIAL EXPENSES

While the Company expected variances in net fi nancial expenses from ICI and from other activities to offset each other, and net fi nancial expenses to remain in line in 2011 compared to 2010, it increased, mainly refl ecting higher net fi nancial expenses from ICI, that were only

partially offset by lower net fi nancial expenses from other activities.

As expected, net fi nancial expenses from ICI increased in 2011 compared to 2010, mainly due to higher interest on non-recourse debt,

primarily from AltaLink.

As expected, net fi nancial expenses from other activities decreased in 2011 compared to the previous year, mainly refl ecting lower interest

on recourse debt, as a result of the repayment of unsecured debentures totalling $105 million at maturity in September 2010, combined

with higher interest revenues, mainly due to higher effective yields.

(IN MILLIONS OF CANADIAN DOLLARS) 2011 2010

FROM ICIFROM OTHER

ACTIVITIES TOTAL FROM ICIFROM OTHER

ACTIVITIES TOTAL

Interest revenues $ (7.1) $ (10.2) $ (17.3) $ (0.1) $ (6.6) $ (6.7)

Interest on debt:

Recourse – 21.9 21.9 – 27.8 27.8

Non-recourse

AltaLink 87.9 – 87.9 71.8 – 71.8

Other 7.9 – 7.9 8.6 – 8.6

Other 11.0 3.8 14.8 4.8 4.8 9.6

Net fi nancial expenses $ 99.7 $ 15.5 $ 115.2 $ 85.1 $ 26.0 $ 111.1




38

6.5 INCOME TAXES ANALYSIS

As expected, the effective income tax rate in 2011 remained in line with 2010.

The following table shows a summary of the Company’s effective tax rate presented separately from ICI and from other activities.

(IN MILLIONS OF CANADIAN DOLLARS) 2011 2010

FROM ICIFROM OTHER


ACTIVITIES TOTAL

Income before income tax expense $ 151.3 $ 330.9 $ 482.2 $ 158.6 $ 449.6 $ 608.2

Income tax expense $ 12.6 $ 82.3 $ 94.9 $ 14.4 $ 106.4 $ 120.8

Effective tax rate (%) 8.4% 24.9% 19.7% 9.1% 23.7% 19.9%

The Company’s effective tax rate has been lower than the statutory Canadian tax rate since 2007, as illustrated below.

INCOME TAX RATES

Statutory tax rate Effective tax rate

07 08 09 10 11

23.5%

21.1%22.7%

19.9% 19.7%

32.7%

30.9% 30.6%29.4%

27.7%





39

7 REVENUE BACKLOG

$10.1 billionTOTAL REVENUE BACKLOG

$2.2 billion

SERVICES

$5.5 billion

PACKAGES

$2.4 billion

O&M

The Company reports revenue backlog, which is a non-IFRS fi nancial measure, for the following categories of activity: i) Services; ii) Packages;

and iii) O&M. Revenue backlog is a forward-looking indicator of anticipated revenues to be recognized by the Company. It is determined

based on contract awards that are considered fi rm.

O&M activities are provided under contracts that can cover a period of up to 40 years. In order to provide information that is comparable

to the revenue backlog of other categories of activity, the Company limits the O&M revenue backlog to the earlier of: i) the contract term awarded; and ii) the next fi ve years. An indication of the total O&M backlog for the period beyond the fi ve-year timeframe, that is not included

in the Company’s backlog, is disclosed in section 7.3.

The Company aims to provide a revenue backlog that is both meaningful and current. As such, the Company regularly reviews its backlog

to ensure that it refl ects any modifi cations, which include awards of new projects, changes of scope on current projects, and project

cancellations, if any.

In the following section, the Company presents its “booking-to-revenue ratio” by category of activity, a non-IFRS measure. The ratio is obtained

by dividing the contract bookings by the revenues, for a given period. This measure provides a basis for assessing the renewal of business.

However, the revenue backlog measure does not include prospects, one of the key elements taken into account when estimating revenues

and gross margin for budget and forecast purposes described in section 4.3, which can be a signifi cant portion of the budgeted and/or

forecasted revenues.

Considering the impact of IAS 31, Interests in Joint Ventures, (“IAS 31”) and IFRIC Interpretation 12, Service Concession Arrangements,

(“IFRIC 12”) on its ICI, the Company decided, starting January 1st 2011, to no longer include its revenue backlog for ICI activities when

reporting its fi nancial results under IFRS. All comparative fi gures herein have been restated accordingly. The Company’s ICI revenue backlog

disclosed in its 2010 Financial Report, under “Management’s Discussion and Analysis”, was $2.9 billion at December 31, 2010.




40

REVENUE BACKLOG BY SEGMENT, GEOGRAPHY AND CATEGORY OF ACTIVITY

The following table provides a breakdown of revenue backlog by segment, geographic areas and category of activity.

AT DECEMBER 31(IN MILLIONS OF CANADIAN DOLLARS) 2011

BY SEGMENT SERVICES PACKAGES O&M TOTAL

Services and PackagesInfrastructure & Environment $ 804.7 $ 2,051.2 $ – $ 2,855.9Hydrocarbons & Chemicals 248.9 971.8 – 1,220.7Mining & Metallurgy 646.4 476.6 – 1,123.0Power 360.8 1,601.1 – 1,961.9Other Industries 165.3 382.1 – 547.4

O&M – – 2,379.1 2,379.1

Total $ 2,226.1 $ 5,482.8 $ 2,379.1 $ 10,088.0

FROM CANADA AND OUTSIDE CANADA

From Canada $ 727.7 $ 3,885.1 $ 1,792.4 $ 6,405.2Outside Canada 1,498.4 1,597.7 586.7 3,682.8

Total $ 2,226.1 $ 5,482.8 $ 2,379.1 $ 10,088.0

AT DECEMBER 31(IN MILLIONS OF CANADIAN DOLLARS) 2010

BY SEGMENT SERVICES PACKAGES O&M TOTAL

Services and PackagesInfrastructure & Environment $ 665.1 $ 2,820.6 $ – $ 3,485.7

Hydrocarbons & Chemicals 165.8 923.8 – 1,089.6

Mining & Metallurgy 273.6 167.1 – 440.7

Power 219.6 1,340.4 – 1,560.0

Other Industries 86.6 320.5 – 407.1

O&M – – 2,732.8 2,732.8

Total $ 1,410.7 $ 5,572.4 $ 2,732.8 $ 9,715.9

FROM CANADA AND OUTSIDE CANADA

From Canada $ 467.3 $ 3,645.0 $ 2,213.7 $ 6,326.0

Outside Canada 943.4 1,927.4 519.1 3,389.9

Total $ 1,410.7 $ 5,572.4 $ 2,732.8 $ 9,715.9

The Company’s revenue backlog at December 31, 2011 increased compared to the end of 2010, refl ecting an increase in Services, partially

offset by a decrease in O&M and Packages.

Backlog from Canada increased, primarily due to an increase in Hydrocarbons & Chemicals, and Mining & Metallurgy, partially offset by

a decrease in Infrastructure & Environment, and O&M.

Backlog from Outside Canada increased, mainly due to an increase in Power, and Mining & Metallurgy, partially offset by a decrease in

Hydrocarbons & Chemicals.

In 2011, SNC-Lavalin acquired certain assets of AECL’s commercial reactor division. Approximately 1,400 employees transitioned from AECL

to Candu Energy Inc., a wholly-owned subsidiary of SNC-Lavalin. Revenue backlog of Candu Energy Inc. amounted to $161.8 million as at

December 31, 2011 and was primarily related to Services activities.




41

7.1 SERVICES BACKLOG

Services backlog increased at the end of 2011 compared to the end of the previous year, in all the Company’s industry segments, mainly

in Mining & Metallurgy.

SERVICES BACKLOG(IN MILLIONS CA$)

Services backlog Booking-to-revenue ratio

07 08 09 10 11

1,556.5 1,545.3 1,464.9 1,410.7

2,226.1

1.4

1.0 1.0 1.0

1.3


RECONCILIATION OF SERVICES BACKLOG

YEAR ENDED DECEMBER 31(IN MILLIONS OF CANADIAN DOLLARS) 2011 2010

Opening backlog $ 1,410.7 $ 1,464.9

Add: Contract bookings during the year 3,021.1 1,884.3

Backlog from business acquisitions 232.1 115.3

Less: Revenues recognized during the year 2,437.8 2,053.8

Ending backlog $ 2,226.1 $ 1,410.7

Services bookings included notable additions in 2011 such as:

> BHP Billiton Jansen Project (Mining & Metallurgy/Canada): Defi nition study phase awarded for Stage 1 of the Jansen Project, a greenfi eld

2 million tonne per year potash facility located near Lanigan, Saskatchewan. The contract was awarded as part of the multi-year Hub

contract signed with BHP Billiton in 2011 for the execution of potash projects to be developed and built mainly in Saskatchewan;

> Ecopetrol Projects (Hydrocarbons & Chemicals/Latin America): Three consulting and project management services contracts awarded

for various types of facilities and infrastructure of Ecopetrol S.A., in Colombia;

> El Halassa, Mea and Daoui Wash Plants Projects (Other Industries/Africa): Contracts awarded by the Offi ce Cherifi en des Phosphates

(“OCP”) to provide EPCM-related activities for the El Halassa Wash Plant, and for the Mea and Daoui Wash Plants, located south-east of

Casablanca near the City of Khouribga, Morocco. These facilities process, or will process, phosphate rock to prepare a liquid that will be

transported by way of a slurry pipeline to the Jorf Lasfar Terminal on the coast of the Atlantic Ocean;

> Emirates Aluminium Smelter Complex Phase II (Mining & Metallurgy/Middle East): EPCM services contract awarded by Emirates Aluminium

Company Limited PJSC (“EMAL”) for Phase II of its smelter in Al Taweelah, in the Emirate of Abu Dhabi. The contract involves EPCM

services for a new aluminum smelter, including a 1,000 MW power plant and a 1.7 km-long potline, the longest ever built. Once completed,

the EMAL Phase II smelter will produce 525,000 tonnes of aluminum per year;




42

> Fenix Power Plant (Power/Latin America): Contract awarded by Fenix Power Peru S.A. to provide EPCM services for the Fenix Power

Plant, located south of Lima, in Chilca, Peru. The project involves completing a 520 MW combined cycle natural gas-fi red electrical

power generation plant, and building a seawater intake and outtake structure to convey water to and from the Pacifi c Ocean to a plant’s

cooling system;

> Kharyaga (Hydrocarbons & Chemicals/Other Regions): Contract awarded by Globalstroy-Engineering to perform detailed engineering and

procurement for Phase III Package 4 of the Kharyaga project, situated 60 km north of the Polar Circle, in Russia’s oil-rich Timan-Pechora

province. SNC-Lavalin will also provide project management support and commissioning services. Phase III involves developing additional

reserves, sustaining a daily output of 30,000 barrels a day, achieving 95% associated gas utilization and eliminating fl aring;

> Mont-Wright Expansion (Mining & Metallurgy/Canada): Contract awarded by ArcelorMittal to provide EPCM services for the Mont-Wright,

brownfi eld expansion project in Quebec, with a nominal rated capacity of 8 million tonnes of iron ore per year. The project will increase

the overall production capacity of the Mont-Wright iron ore concentrator to approximately 24 million tonnes per year; and

> Muskrat Falls Hydroelectric Development (Power/Canada): Agreement signed with Nalcor Energy to deliver EPCM services for

Phase I of the Lower Churchill Project, in Newfoundland and Labrador. Phase I of the project will consist of the Muskrat Falls generating

facility with a capacity of 824 MW. The transmission system project will include 1,200 km of transmission lines crossing from Labrador

to the island of Newfoundland and associated converter stations, as well as transmission lines interconnecting the Muskrat Falls facility

to the Churchill Falls generating station.

7.2 PACKAGES BACKLOG

Packages backlog decreased at the end of 2011 compared to 2010, resulting primarily from a decrease in Infrastructure & Environment,

partially offset by an increase in Mining & Metallurgy, and Power.

PACKAGES BACKLOG(IN MILLIONS CA$)

Packages backlog Booking-to-revenue ratio

07 08 09 10 11

4,457.0

3,508.0

4,197.5

5,572.4 5,482.8

0.60.7

1.3

2.0

1.0





43

RECONCILIATION OF PACKAGES BACKLOG




Backlog from business acquisitions 17.3 –


Removal of backlog from projects in Libya – 484.0

Ending backlog $ 5,482.8 $ 5,572.4

Packages bookings included notable additions in 2011 such as:

> Agrium (Mining & Metallurgy/Canada): EPC cost-plus reimbursable contract awarded in 2009 by Agrium for the expansion of its existing

Vanscoy underground potash mine, production hoist, concentrator and infrastructure to increase the production capacity by 1 million

tonnes per year, which received full notice to proceed into execution from Agrium in 2011. The infrastructure includes 138 kV power supply

systems, a tailings management area, and rail loadout facilities;

> Canadian Natural Resources Ltd (“CNRL”) Froth Treatment Plant (Hydrocarbons & Chemicals/Canada): Contract awarded by CNRL,

a major oil sands mining producer, to perform EPC-related work for a froth treatment plant that will process 155,000 barrels of bitumen

froth per day, in the Fort McMurray region. The engineering phase is underway;

> Edmonton North Link (Infrastructure & Environment/Canada): Contract awarded by the City of Edmonton to the North Link Partnership,

a joint venture of the Company, for the Edmonton North light rail transit (“LRT”) project to provide construction management services,

provision of labour, materials and equipment for all construction work, as well as testing and commissioning of the system for handover

to the City of Edmonton. Work on the North LRT project began in 2011;

> Matala Dam Rehabilitation Project (Power/Africa): EPC contract for the design and rehabilitation of a new spillway of an existing hydro

power plant, including the supply and construction of new radial gates. The project is underway;

> Restigouche Hospital Centre for Psychiatric Care (Infrastructure & Environment/Canada): EPC-related work, awarded by Rainbow Hospital

Partnership, wholly-owned by SNC-Lavalin, for the new Restigouche Hospital Centre for psychiatric care in Campbellton, New Brunswick.

The hospital will be built by an SNC-Lavalin Construction-led joint venture. It will have 140 beds in seven in-patient units, and facilities

for education and research, clinical support, and administration and general support services. It will also serve as the forensic psychiatry

facility for the province. Work is underway;

> Rudarsko–Topionicarski Basen Bor Grupa (“RTB-Bor”) Copper Smelter Modernization (Other Industries/Europe): EPC contract relating

to the RTB-Bor copper smelter upgrade, including a new fl ash furnace, sulphuric acid plant and effl uent treatment plant, and upgrading

of the existing facility’s key process areas. When the project is completed, the new facility will provide RTB-Bor with 80,000 tonnes of

copper anode per year while reducing liquid and gaseous emission levels to European standards. Work has begun;

> SaskPower Heat Rejection System (Power/Canada): EPC contract for the Heat Rejection System of SaskPower’s Boundary Dam Power

Station that will supply cooling water to the carbon capture sequestration plant, the CO2 compressor and the fl ue gas cooler using two

closed loop water confi gurations;

> SaskPower BD3 CO2 Compression Balance of Plant (Power/Canada): The process entails the installation, at SaskPower’s Boundary Dam

Power Station, of a CO2 compressor and dehydration packages, and the equipment developed by SNC-Lavalin during the FEED stage of

the project. The scope also includes installation of two redundant 13.8 kV electrical feeds; and

> Te Mihi Geothermal Plant (Power/Asia Pacifi c): EPC-related work awarded by Contact Energy, based in New Zealand, for the construction of

the 166 MW Te Mihi double fl ash geothermal project in Taupo, New Zealand. Two new geothermal power units of 83 MW each will be built.




44

7.3 O&M BACKLOG

O&M backlog at the end of 2011 decreased compared to 2010, refl ecting the normal fl uctuations in the timing of the long-term contracts,

primarily in Canada.

O&M BACKLOG(IN MILLIONS CA$)

O&M backlog Booking-to-revenue ratio

07 08 09 10 11

2,513.9

2,196.2

2,596.12,732.8

2,379.1

1.9

0.7

1.31.1

0.7


RECONCILIATION OF O&M BACKLOG




Backlog from business acquisitions 23.8 –


Ending backlog $ 2,379.1 $ 2,732.8

Notable contract bookings in 2011 included additions such as:

> Canada’s Department of National Defence renewed a support contract for the Canadian Navy’s minor warships and auxiliary vessels for

another four years, from 2011 to 2015; and

> Service operating concession contracts for four new airports in France, increasing the Company’s network to 12 airports in France and

French territories that covers the following, but not exclusively: airport landing strip operations, infrastructure and site maintenance,

as well as commercial development for the airports.

A large number of the Company’s O&M contracts have been signed for a period that extends well beyond the fi ve-year timeframe that is

included in its backlog for this category of activity. The following table indicates the revenue backlog for the O&M category by year for the

fi ve years that have been included in backlog, per the Company’s booking policy, as well as the anticipated revenues to be derived thereafter,

based on its fi rm contracts, which are not included in backlog.

INCLUDED IN BACKLOGNOT INCLUDED

IN BACKLOG

(IN MILLIONS OF CANADIAN DOLLARS) 2012 2013 2014 2015 2016 TOTAL THEREAFTER

O&M backlog $ 1,029.6 $ 566.1 $ 353.3 $ 235.8 $ 194.3 $ 2,379.1 $ 2,641.5




45

8 GEOGRAPHIC BREAKDOWN OF REVENUES BY CATEGORY OF ACTIVITY

YEAR ENDED DECEMBER 31 (IN MILLIONS OF CANADIAN DOLLARS) 2011

SERVICES PACKAGES O&M ICI TOTAL

Canada $ 981.2 $ 1,344.7 $ 1,195.9 $ 480.7 $ 4,002.5 56%

Outside CanadaAfrica 237.6 798.2 85.6 19.3 1,140.7 16%Europe 319.5 252.5 49.7 2.4 624.1 9%Latin America 443.4 37.5 45.8 – 526.7 7%Middle East 147.9 240.3 3.0 – 391.2 5%United States 137.4 110.1 – (1.0) 246.5 3%Asia Pacifi c 147.2 75.0 19.2 – 241.4 3%Other Regions 23.6 13.2 – – 36.8 1%

1,456.6 1,526.8 203.3 20.7 3,207.4 44%

Total $ 2,437.8 $ 2,871.5 $ 1,399.2 $ 501.4 $ 7,209.9 100%

YEAR ENDED DECEMBER 31 (IN MILLIONS OF CANADIAN DOLLARS) 2010

SERVICES PACKAGES O&M ICI TOTAL

Canada $ 714.7 $ 734.7 $ 1,179.7 $ 445.9 $ 3,075.0 51%

Outside CanadaAfrica 232.3 891.5 76.7 25.5 1,226.0 20%

Europe 275.0 171.6 24.9 2.2 473.7 8%

Latin America 243.5 99.5 23.7 – 366.7 6%

Middle East 258.2 138.4 2.9 – 399.5 7%

United States 154.8 66.5 – (1.3) 220.0 4%

Asia Pacifi c 149.6 9.7 22.5 – 181.8 3%

Other Regions 25.7 25.5 – – 51.2 1%

1,339.1 1,402.7 150.7 26.4 2,918.9 49%

Total $ 2,053.8 $ 2,137.4 $ 1,330.4 $ 472.3 $ 5,993.9 100%

Expansion of geographic, product and sector coverage is a strategic priority for the Company. The ability to deliver local projects using local

resources is a key component in delivering its geographic growth strategy.




46

8.1 REVENUES IN CANADA

As expected, revenues in Canada increased in 2011 compared to 2010, mainly due to a higher level of Packages activities.

Services activities in Canada for 2011 increased compared to 2010, primarily refl ecting a higher level of activity in Mining & Metallurgy,

and Power.

Packages activities in Canada increased in 2011 compared to the previous year, refl ecting mainly a higher level of activity from Infrastructure

& Environment, Power, and Mining & Metallurgy.

O&M activities in Canada in 2011 remained in line with 2010.

The increase in ICI revenues in Canada for 2011 compared to 2010 was mainly from AltaLink and Highway 407.

8.2 REVENUES FROM OUTSIDE CANADA

As expected, the Company’s revenue from outside Canada increased in 2011, compared to 2010. The increase was from all geographic

areas, except from Africa, the Middle East, and from Other Regions. The variance is analyzed as follows:

> Revenues from Africa decreased in 2011 compared to 2010, due to a decrease in Packages activities, mainly from a lower level of

activities from Infrastructure & Environment, partially offset by an increase from Hydrocarbons & Chemicals. The Company generated

$86.2 million of revenues (1.2% of total revenues) from Libya for the year ended December 31, 2011, compared to $418.2 million (7.0%

of total revenues) in 2010.

> Revenues from Europe increased in 2011 compared to 2010, mainly due to an increase in Packages activities, primarily in Infrastructure

& Environment, and a higher level of Services activity, in all the Company’s industry segments.

> Revenues in Latin America increased in 2011 compared to the previous year, mainly refl ecting increased Services activities from Mining

& Metallurgy, and Hydrocarbons & Chemicals, partially offset by decreased Packages activities, mainly in Infrastructure & Environment.

> Revenues from the Middle East in 2011 remained in line with 2010, as the decrease in Services activities, primarily from Hydrocarbons

& Chemicals, was offset by a higher level of Packages activity, mainly in Infrastructure & Environment.

> United States revenues increased in 2011 compared to 2010, mainly due to increased Packages activities, mainly in Power partially offset

by a lower level of Services activity, primarily in Power.

> In Asia Pacifi c, revenues increased in 2011 compared to the previous year, primarily refl ecting a higher level of Packages activity, mainly

in Power.

> In Other Regions, revenues decreased in 2011 compared to 2010, mainly refl ecting a lower level of Packages activity.




47

9 OPERATING RESULTS BY SEGMENT

$505 millionTOTAL OPERATING INCOME

$324 millionSERVICES AND

PACKAGES

$50 million

O&M

$131 million

ICI

As mentioned previously, the Company’s results are analyzed by segment. The segments regroup related activities within SNC-Lavalin

consistent with the way management performance is evaluated. The Company presents the information in the way management performance

is evaluated, and regroups its projects within the related industries.

The following discussion reviews the Company’s revenues and operating income by segment. Refer to Note 4 to its 2011 audited annual

consolidated fi nancial statements to obtain information on the way the Company determines operating income.


REVENUESOPERATING

INCOME

OPERATINGINCOME

OVER REVENUES REVENUESOPERATING

INCOME

OPERATINGINCOME

OVER REVENUES

Services and PackagesInfrastructure & Environment $ 1,945.1 $ 46.8 2.4% $ 1,807.1 $ 221.3 12.2%

Hydrocarbons & Chemicals 1,075.6 33.8 3.1% 888.7 21.8 2.4%

Mining & Metallurgy 1,022.0 80.6 7.9% 683.8 59.6 8.7%

Power 894.1 119.7 13.4% 496.6 116.4 23.4%

Other Industries 372.5 43.2 11.6% 315.0 38.6 12.3%

O&M 1,399.2 50.1 3.6% 1,330.4 39.4 3.0%

ICI 501.4 131.2 26.2% 472.3 134.9 28.6%

Total $ 7,209.9 $ 505.4 7.0% $ 5,993.9 $ 632.0 10.5%

The summary table below compares the actual contribution of each segment in 2011, in terms of operating income, to the initial expectations

expressed in the 2010 annual MD&A.

2011

EXPECTATIONS ACTUALACTUAL VS.

EXPECTATIONS

Services and PackagesInfrastructure & Environment

Hydrocarbons & Chemicals

Mining & Metallurgy

Power

Other Industries

O&MICI

Total operating income

INCREASE COMPARED TO PREVIOUS YEAR

DECREASE COMPARED TO PREVIOUS YEAR

IN LINE WITH PREVIOUS YEAR

IN LINE OR ABOVE EXPECTATIONS

BELOW EXPECTATIONS

In 2011, the Company’s operating income was below expectations, as the decrease in 2011 compared to 2010 was higher than expected,

mainly refl ecting a higher than expected decrease in contribution from Infrastructure & Environment, and a lower than expected contribution

from Hydrocarbons & Chemicals, and Power.




48

9.1 SERVICES AND PACKAGES ACTIVITIES

Engineering and construction expertise is provided by the Company’s employees to clients as either Services or Packages activities. The graphs

below illustrate the distribution of revenues between Services and Packages (i.e., Services contracts which are typically cost-plus and

Packages contracts which are typically fi xed-price) as well as the operating income-to-revenue ratio.

REVENUES BY CATEGORY OF ACTIVITY(IN MILLIONS CA$)

Services Packages

07 08 09 10 11

5,361.8 5,534.9

4,423.64,191.2

5,309.3

3,63

5.7

1,72

6.1

3,22

9.5

2,30

5.4

2,20

2.2

2,22

1.4

2,13

7.4

2,05

3.8

2,87

1.5

2,43

7.8

OPERATING INCOME OVER REVENUES

07 08 09 10 11

0.7%

6.4%

9.8%10.9%

6.1%


The variation in the operating income-to-revenue ratio is mainly due to: i) the revenue mix as Services and Packages activities generate different

gross margin-to-revenue ratios (refer to section 4.1.2, “Understanding the difference between an EPCM contract and an EPC contract”); and

ii) the gross margin-to-revenue ratio generated from Packages projects.

The proportion of Services activities in the Services and Packages mix has varied, from 32.2% in 2007, to 41.7% in 2008, 50.2% in 2009, 49.0%

in 2010, and 45.9% in 2011. The lower operating income-to-revenue ratio in 2007 was mainly due to a loss in Power, in Packages activities.

The higher operating income-to-revenue ratio for 2009 and 2010 is explained by the proportion of Services in the Services and Packages mix

combined with favourable reforecasts on certain major Packages projects in both years.

9.1.1 INFRASTRUCTURE & ENVIRONMENTInfrastructure & Environment includes a full range of infrastructure projects for the public and private sectors including airports, buildings,

health and care, educational and recreational facilities, seaports, marine and ferry terminals, fl ood control systems, urban transit systems,

railways, roads and bridges, and water and wastewater treatment and distribution facilities. It also includes social and environmental

impact assessments and studies, community engagement, site assessment, remediation and reclamation, ecological and human health

risk assessments, waste management, water resources planning, development and supply, treatment and sanitation, marine and coastal

management, geoenvironmental services, climate change, air quality and acoustics, environmental management, geographic information

systems, and agriculture and rural development.




49

OPERATING INCOME FROM INFRASTRUCTURE & ENVIRONMENT(IN MILLIONS CA$)

Operating income from Infrastructure & Environment

Operating income over revenues (%)

07 08 09 10 11

93.0113.0

212.9 221.3

46.85.3%

6.6%

13.3%12.2%

2.4%



Revenues from Infrastructure & Environment

Services $ 708.7 $ 645.2 9.8%

Packages 1,236.4 1,161.9 6.4%

Total $ 1,945.1 $ 1,807.1 7.6%

Operating income from Infrastructure & Environment $ 46.8 $ 221.3 (78.9%)

Operating income over revenues from Infrastructure & Environment (%) 2.4% 12.2% N/A

Revenue backlog at year end $ 2,855.9 $ 3,485.7 (18.1%)

Revenues from Infrastructure & Environment increased in 2011 compared to 2010, mainly refl ecting a higher level of activity in both

categories of activity. The increase in revenues was, however, lower than anticipated. It should be noted that revenues for the year ended

December 31, 2011 included $86.2 million of revenues from Libya, compared to $418.2 million in 2010.

The major revenue contributors in 2011 were as follows:

> Calgary’s Southeast Stoney Trail Ring Road (Packages/Canada): EPC-related work for the Southeast Stoney Trail Ring Road concession

awarded in 2010 by Alberta Transportation to Chinook Roads Partnership. This contract involves the design and construction of 25 kilometres

of a six-lane divided road including nine interchanges, one road and two rail fl yovers, comprising of 27 bridge structures in the southeast

section of Calgary;

> Calgary West Light Rail Transit (“LRT”) (Packages/Canada): Contract awarded by the City of Calgary in 2009 to design, procure and build

an eight-kilometre extension to the LRT system consisting primarily of six passenger stations, nine traction power substations, a major

highway interchange, and two park-and-ride facilities in Calgary;

> McGill University Health Centre (“MUHC”) (Packages/Canada): EPC-related work for the new Glen Campus awarded by MUHC to Groupe

Immobilier Santé McGill (“MIHG”), in Montreal, Quebec, under a public-private partnership arrangement. The contract involves the design

and construction of the facilities, comprised mainly of two hospitals, a cancer centre and a research institute. Construction is underway;

> New District Cooling Plants in Riyadh (Packages/Middle East): Contract awarded in 2010 to design and build two district cooling plants

for Rayadah Investment Company which will serve the King Abdullah Financial District in Riyadh, Kingdom of Saudi Arabia;

> New District Cooling Plants in Dhahran (Packages/Middle East): Contract awarded in 2010 by Saudi Tabreed for district cooling facilities

in Dhahran, in the Kingdom of Saudi Arabia;




50

> New Maison symphonique Concert Hall of Montreal (Packages/Canada): EPC portion of a public-private partnership arrangement with

the Government of Quebec to design and build a new 2,100-seat concert hall in downtown Montreal, which was substantially completed

in 2011;

> Puy de Dôme Cog Railway (Packages/Europe): Contract to design and build a 5.3 km electric cog railway linking the base of the Puy-de-Dôme

tourism site, in France, to its summit, and capable of carrying 1,200 passengers per hour; and

> Winnipeg’s Centreport Canada Way (Packages/Canada): Contract awarded in 2010 for the design and construction of a four-lane,

four-kilometre section of Centreport Canada Way linking Manitoba’s 20,000-acre inland port to the James A. Richardson International

Airport and the Perimeter Highway.

The Company’s operating income from Infrastructure & Environment was below expectations, as the decrease in 2011 was higher than

expected when compared to 2010, mainly due to a lower than anticipated gross margin-to-revenue ratio, primarily resulting from unfavourable

cost reforecasts on certain major Packages projects in 2011, as well as a fourth quarter 2011 loss related to the Company’s fi nancial position

related to its Libyan infrastructure projects, combined with a lower than anticipated increase in the volume of activity. The 2010 operating income

was positively impacted by favourable cost reforecasts on certain major Packages projects. It should be noted that the 2010 operating income was

unfavourably adjusted to refl ect a correction related to $20 million in payments made, under what is presumed to be an agency agreement, that

were charged and documented to a construction project to which they did not relate (refer to section 1.1 “Recent Developments – Independent

Review” and 14.1 “First-Time Adoption of IFRS”). Because these payments were documented to construction projects to which they did not relate,

and that there is no direct and conclusive evidence on the use and purpose of these payments or the nature of the services rendered in connection

therewith it was determined that they would need to be recorded as period expenses (i.e., not generating revenues) for accounting purposes.

The Company recorded a loss of $39.3 million on Libyan projects in 2011, of which $22.4 million was recognized by the Company

in the fourth quarter in order for its net financial position, excluding $22.9 million of cash and cash equivalents held in a Libyan

bank, to be $nil with respect to projects that were in progress before the Company evacuated Libya in February 2011. This net

financial position was determined with the projects being considered on an aggregated basis. As a result, the deferred revenues

and advances from these projects are economically offset by trade receivables and contracts in progress on these same projects.

9.1.2 HYDROCARBONS & CHEMICALS

Hydrocarbons & Chemicals (previously Chemicals & Petroleum) includes projects in the areas of bitumen production, heavy or conventional

oil production, onshore and offshore oil and gas, upgrading and refi ning, petrochemicals, chemicals, biofuels and green chemicals,

gas processing, liquefi ed natural gas plants and re-gasifi cation terminals, coal gasifi cation, carbon capture, transportation and storage,

pipelines, terminals and pump stations.

OPERATING INCOME FROM HYDROCARBONS & CHEMICALS(IN MILLIONS CA$)

Operating income from Hydrocarbons & Chemicals


07 08 09 10 11

126.4

104.4

21.0 21.833.8

10.1%

7.4%

2.5% 2.4%3.1%





51


Revenues from Hydrocarbons & Chemicals

Services $ 375.2 $ 331.8 13.1%

Packages 700.4 556.9 25.8%

Total $ 1,075.6 $ 888.7 21.0%

Operating income from Hydrocarbons & Chemicals $ 33.8 $ 21.8 55.0%

Operating income over revenues from Hydrocarbons & Chemicals (%) 3.1% 2.4% N/A

Revenue backlog at year end $ 1,220.7 $ 1,089.6 12.0%

Hydrocarbons & Chemicals revenues increased in 2011 compared to the previous year, mainly refl ecting a higher level of Packages activities.


> Baytown Refi ning and Chemical Plant (Services/United States): Agreement to provide front-end engineering, project management,

detailed engineering, construction management and procurement services for a refi nery and chemical complex located in Baytown, Texas;

> Ecopetrol Projects (Services/Latin America): Three consulting and project management services contracts awarded for various types of

facilities and infrastructure of Ecopetrol S.A., in Colombia;

> North Atlantic Refi nery Debottleneck Project (Services/Canada): Project to reduce greenhouse gas emissions and provide for steady crude

feed blending and storage, and to optimize the current refi nery from 112,900 to 120,000 barrels per day by refurbishing 21 process units

and cleaning product yield within existing major equipment constraints at the Come by Chance refi nery in Newfoundland and Labrador;

> Oscar II (Packages/Europe): Turnkey EPC and commissioning contract for GRTgaz, a subsidiary of GDF Suez, for two new natural gas

compressor and interconnection stations near the towns of Fontenay-Mauvoisin and Saint-Avit, France; and

> Rhourde Nouss (Packages/Africa): EPC contract awarded in 2009 to design and build a gas treatment complex and a natural gas process

facility capable of producing and processing 3.5 billion m3 of natural gas per year in Algeria.

The operating income from Hydrocarbons & Chemicals in 2011 increased when compared to 2010, but the increase was below the Company’s

expectation, mainly due to unfavorable cost reforecasts on certain Packages projects as well as $35 million of period expenses related to

payments made in the fourth quarter of 2011. These payments, made under what are presumed to be agency agreements, were charged

and documented to construction projects to which they did not relate (refer to section 1.1 “Recent Developments – Independent Review”).

Because these payments were documented to construction projects to which they did not relate, and that there is no direct and conclusive

evidence on the use and purpose of these payments or the nature of the services rendered in connection therewith, it was determined that

they would need to be recorded as period expenses (i.e., not generating any revenues) for accounting purposes. In 2010, the low level of

operating income was mainly due to unfavourable cost reforecasts on certain Packages projects.




52

9.1.3 MINING & METALLURGYMining & Metallurgy includes a full range of activities for all mineral and metal recovery processes, including mine infrastructure development,

mineral processing, smelting, refi ning, mine closure and reclamation, mine and tailings management, and fertilizers.

OPERATING INCOME FROM MINING & METALLURGY(IN MILLIONS CA$)

Operating income from Mining & Metallurgy


07 08 09 10 11

68.1

117.0

72.2

59.6

80.6

15.2%

13.6%

9.4%8.7%

7.9%



Revenues from Mining & Metallurgy

Services $ 869.2 $ 643.4 35.1%

Packages 152.8 40.4 277.6%

Total $ 1,022.0 $ 683.8 49.5%

Operating income from Mining & Metallurgy $ 80.6 $ 59.6 35.4%

Operating income over revenues from Mining & Metallurgy (%) 7.9% 8.7% N/A

Revenue backlog at year end $ 1,123.0 $ 440.7 154.8%

As expected, Mining & Metallurgy revenues increased in 2011 compared to 2010, primarily due to a higher level of activity.


> Agrium (Packages/Canada): EPC cost-plus reimbursable contract awarded in 2009 by Agrium for the expansion of its existing Vanscoy

underground potash mine;

> Ambatovy Nickel Project (Services/Africa): Construction continued on this EPCM contract, awarded in 2006, to construct an open-pit

mine operation, and a hydrometallurgical processing plant expected to produce mainly nickel and cobalt in Madagascar. SNC-Lavalin has

a 5% equity investment in this project accounted for by the cost method, as mentioned in section 9.3;

> BHP Billiton Jansen Project (Services/Canada): Defi nition study phase awarded for Stage 1 of the Jansen Project, located near Lanigan,

Saskatchewan, as part of the multi-year Hub contract signed with BHP Billiton in 2011 for the execution of potash projects to be developed

and built mainly in Saskatchewan;

> Emirates Aluminum Smelter Complex Phase II (Services/Middle East): EPCM services contract awarded by Emirates Aluminum Company

Limited PJSC (EMAL) in the third quarter of 2011 for Phase II of its smelter in Al Taweelah, in the Emirate of Abu Dhabi;

> Ferro Carajas S11D (Services/Latin America): Detailed engineering and technical services for the project implementation phase

including consolidation of the basic design and development of the detailed design, procurement support, construction management and

pre-commissioning for a mine that would produce 90 million tonnes of iron ore per year and benefi ciation plant facilities;

> Mina de Cobre Panama Project (Services/Latin America): Contract awarded to provide basic engineering and EPCM services for the

development of the Cobre Panama copper mine project in Panama. Construction work began in late 2011;




53

> Mont-Wright Expansion Project (Services/Canada): Contract awarded by ArcelorMittal to provide EPCM services for the Mont-Wright,

brownfi eld expansion project in Quebec;

> Potàsio Rio Colorado Project (Services/Latin America): Mandate to provide the detailed design for a potash plant in Argentina, for

interconnections with the mine and for the airstrip. The initial rated production capacity of the plant is 2.9 million tonnes per year and

a future planned expansion will increase it to 4.3 million tonnes per year; and

> Rio Tinto Alcan’s AP60 Project (Services/Canada): Contract awarded to SNC-Lavalin /Hatch Joint Venture providing the preliminary

engineering for a new AP60 pilot plant at Alcan’s complex in Jonquiere, Quebec. In late 2010, Rio Tinto Alcan awarded the implementation

of the fi rst phase providing project management, engineering, procurement, construction, management and pre-commissioning services

to implement this new energy-effi cient and cost-effective aluminum smelting technology (AP60) aimed at providing a 40% higher output

per pot compared to current production.

As expected, the Company’s contribution from Mining & Metallurgy increased in 2011 compared to 2010, primarily refl ecting a higher

level of activity. The increase was partially offset by a lower gross margin-to-revenue ratio in Services, mainly due to lower gross margins

on certain major projects, combined with additional costs on one project in the fi rst quarter of 2011.

9.1.4 POWERPower includes projects in hydro, thermal and nuclear power generation, energy from waste, green energy solutions, and transmission

and distribution.

OPERATING INCOME FROM POWER(IN MILLIONS CA$)

Operating income from Power


07 08 09 10 11

-267.3

-24.4

88.0116.4 119.7

-16.5%

-2.1%

9.5%

23.4%

13.4%



Revenues from Power

Services $ 322.2 $ 309.3 4.2%

Packages 571.9 187.3 205.4%

Total $ 894.1 $ 496.6 80.1%

Operating income from Power $ 119.7 $ 116.4 2.8%

Operating income over revenues from Power (%) 13.4% 23.4% N/A

Revenue backlog at year end $ 1,961.9 $ 1,560.0 25.8%

As expected, Power revenues increased in 2011 compared to 2010, mainly refl ecting an increased level of Packages activity.

In 2011, SNC-Lavalin acquired certain assets of AECL’s commercial reactor division. Approximately 1,400 employees transitioned from AECL

to Candu Energy Inc., a wholly-owned subsidiary of SNC-Lavalin. Revenue backlog of Candu Energy Inc. amounted to $161.8 million as at

December 31, 2011 and was primarily related to Services activities.




54


> 335 MW Waneta Expansion Project (Packages/Canada): Contract to design and build a new powerhouse adjacent to the existing Waneta Dam,

comprising a 335 MW hydroelectric power facility in British Columbia. Engineering and construction work is underway;

> Matala Dam Rehabilitation Project (Services/Africa): EPC contract for the design and rehabilitation of a new spillway at an existing hydro

power plant, including the supply and construction of new radial gates. The project is underway;

> Muskrat Falls Hydroelectric Development (Services/Canada): Agreement signed with Nalcor Energy to deliver EPCM activities for

Phase I of the Lower Churchill Project, in Newfoundland and Labrador;

> SaskPower’s Boundary Dam Integrated Carbon Capture and Sequestration (“CCS”) Plant (Packages/Canada): Contract for the

CCS Demonstration Project, involving the transformation of an aging unit at the coal-fi red Boundary Dam Power Station in Saskatchewan

into a source of clean electricity and a producer of CO2 for enhanced oil recovery;

> Southcentral Power Project (Packages/United States): Contract awarded in 2010 by Chugach Electric Association, Inc., Alaska’s largest

electric utility. The mandate includes engineering, balance of plant procurement, construction and commissioning for a 200 MW natural

gas-fi red combined cycle power plant in Anchorage, Alaska;

> Te Mihi Geothermal Project (Packages/Asia Pacifi c): EPC-related work awarded by Contact Energy, based in New Zealand, for the

construction of the 166 MW Te Mihi geothermal project in Taupo, New Zealand; and

> Thermal Power Plant in Tunisia (Packages/Africa): Contract awarded by the Société Tunisienne de l’Éléctricité et du Gaz to design and

construct a 420 MW gas-powered combined cycle thermal power plant at Sousse, Tunisia. SNC-Lavalin is responsible for the engineering

and the balance of plant work, which includes construction of the power block, gas and water treatment facilities, compressed air works

and installation of the power equipment.

While the Company expected its operating income from Power in 2011 to increase compared to 2010, it remained in line, as the higher

level of Packages activity was offset mainly by a lower gross margin-to-revenue ratio, primarily refl ecting the 2010 gain before taxes of

$22.8 million from the disposal of certain technology solution assets, as well as favourable costs reforecasts in 2010. Refer to section 6.1 for

more details on the 2010 gain before taxes.

9.1.5 OTHER INDUSTRIESOther Industries combines projects in several industry sectors, namely agrifood, pharmaceuticals and biotechnology, sulphuric acid as well as

projects related to other industrial facilities not already identifi ed as part of any other preceding industry segments.

OPERATING INCOME FROM OTHER INDUSTRIES(IN MILLIONS CA$)

Operating income from Other Industries


07 08 09 10 11

18.8

46.8

40.638.6

43.2

6.6%

12.2%

13.3%12.3%

11.6%





55


Revenues from Other Industries

Services $ 162.5 $ 124.1 30.9%

Packages 210.0 190.9 10.0%

Total $ 372.5 $ 315.0 18.2%

Operating income from Other Industries $ 43.2 $ 38.6 11.9%

Operating income over revenues from Other Industries (%) 11.6% 12.3% N/A

Revenue backlog at year end $ 547.4 $ 407.1 34.5%

Other Industries revenues increased in 2011 compared to 2010, refl ecting a higher level of activity in both categories of activity.

While the Company expected its operating income derived from Other Industries in 2011 to remain in line with 2010, it increased, mainly

due to a higher level of activity, partially offset by a lower gross margin-to-revenue ratio.

9.2 O&M

O&M activities are provided by the Company’s employees to clients in the following lines of business:

> Project, property & facility management: includes all aspects of building operations and management, realty management, project

delivery and commissioning, energy management and sustainability initiatives, and program management;

> Industrial: includes specialized expertise to oversee the O&M of assets such as turbines, steam generators, boilers, water supply and treatment

systems, electrical systems, mechanical systems and manufacturing installations, from start-up mobilization to steady-state operation;

> Transportation: includes operations, maintenance and rehabilitation management for large infrastructure assets including airports, public

transit systems, highways, bridges and tunnels; and

> Defence & logistics: includes support to Canada’s Navy, servicing many different types of vessels, from research and defence boats to tugs

and many other classes of ships, and also includes support to Canada’s Armed Forces, as well as large mining, metallurgy, petrochemical,

and oil and gas operations by building and maintaining temporary camps and living facilities around the world.

The Company currently manages more than 8,600 facilities that include buildings, workforce lodges, Canada’s only air-rail link – the Canada

Line, bridges, power plants, ships, highways and airports, spread across 12.6 million square metres of real estate and 250,000 infrastructure

sites, making SNC-Lavalin one of the largest facility operations and management providers in Canada.

SNC-Lavalin’s expertise in O&M activities, in addition to obtaining stand-alone O&M contracts, allows the Company to expand on its Services,

Packages, and ICI activities by offering all-inclusive expertise that meets clients’ needs, and complements its ICI.


Revenues from O&M

Project, property and facility management $ 939.9 $ 977.9 (3.9%)

Industrial 161.7 137.4 17.7%

Transportation 109.5 104.1 5.1%

Defence and logistics 188.1 111.0 69.4%

Total $ 1,399.2 $ 1,330.4 5.2%

Operating income from O&M $ 50.1 $ 39.4 27.1%

Operating income over revenues from O&M (%) 3.6% 3.0% N/A

Revenue backlog at year end $ 2,379.1 $ 2,732.8 (12.9%)

As expected, O&M revenues increased in 2011 compared to 2010.

As expected, operating income increased in 2011 compared to 2010, mainly refl ecting a higher gross margin-to-revenue ratio.




56

9.3 INFRASTRUCTURE CONCESSION INVESTMENTS (“ICI”)

As mentioned previously, SNC-Lavalin makes investments in infrastructure concessions in certain infrastructure for public services, such as

airports, bridges, cultural and public service buildings, power, mass transit systems, roads and water.

9.3.1 DESCRIPTIONS OF ICIThe ICI segment includes SNC-Lavalin’s ownership interest in the following main investments as at December 31, 2011 (refer to Note 5C to

the 2011 audited annual consolidated fi nancial statements for additional disclosure on the impact of these investments on the statement

of fi nancial position):

NAMEOWNERSHIP

INTEREST

ACCOUNTING METHOD

SUBJECT TO IFRIC 12

HELD SINCE

MATURITY OF CONCESSION AGREEMENT DESCRIPTION OF ACTIVITIES

FULL CONSO-LI DATION EQUITY COST

407 International Inc.

(“Highway 407”)

16.77% No 1999 2098 Operates, maintains and manages

highway 407, a 108 km all-electronic toll

highway in the Greater Toronto Area, under

a 99-year concession agreement.

AltaLink Holdings, L.P.

(“AltaLink”) (1)

100% No 2002 N/A Owns and operates approximately

11,800 km of transmission lines and

over 275 substations in Alberta on a

rate-regulated basis.

Ambatovy

Nickel Project

(“Ambatovy”)

5% N/A 2007 N/A An open-pit mine operation, and a

hydrometallurgical processing plant in

Madagascar that will produce mainly nickel

and cobalt once construction is completed.

Astoria Project

Partners LLC

(“Astoria”)

21.0% No 2004 N/A Owns and operates a 500 MW natural

gas-fi red combined cycle power plant in

Queens, New York.

Astoria Project

Partners II LLC

(“Astoria II”)

18.5% No 2008 N/A Astoria II owns and operates a 550 MW

natural gas-fi red combined cycle power

plant in Queens, New York. Astoria II signed

a 20-year fi rm Power Purchase Agreement

with the New York Power Authority (“NYPA”).

Chinook Roads

Partnership

(“Chinook”)

50% Yes 2010 2043 Upon completion of the construction,

it will operate and maintain the southeast

Stoney Trail, being the southeast leg of

the Ring Road for the City of Calgary.

Groupe immobilier

santé McGill

(“MIHG”)

60% Yes 2010 2044 Once construction is completed, it will

operate and maintain the McGill University

Health Centre’s new Glen Campus.

InTransit BC

Limited Partnership

(“InTransit BC”)

33.3% Yes 2005 2040 InTransit BC operates and maintains the

Canada Line, a 19-kilometre rapid transit

line connecting the cities of Vancouver and

Richmond with Vancouver International

Airport in British Columbia under a 35-year

concession agreement.

(1) SNC-Lavalin holds an ownership interest of 100% in AltaLink Holdings, L.P. (“AltaLink”), and ultimately owns 100% of all of its subsidiaries, including AltaLink, L.P.,

the owner and operator of transmission lines and substations subject to rate regulation.

N/A: not applicable




57

NAMEOWNERSHIP

INTEREST

ACCOUNTING METHOD

SUBJECT TO IFRIC 12

HELD SINCE

MATURITY OF CONCESSION AGREEMENT DESCRIPTION OF ACTIVITIES

FULL CONSO-LI DATION EQUITY COST

Malta International

Airport p.l.c.

15.5% No 2002 2067 Has the right to own and manage the

Malta International Airport under a 65-year


Myah Tipaza S.p.A.

(“Myah Tipaza”)

25.5% No 2008 N/A Myah Tipaza owns, operates and maintains

a 120,000 m3pd seawater desalination

plant in Algeria and will sell the total

capacity of treated water to Sonatrach

and l’Algérienne des Eaux (“ADE”) under

a 25-year take-or-pay agreement.

Okanagan Lake

Concession

Limited Partnership

(“Okanagan Lake

Concession”)

100% Yes 2005 2035 Operates, maintains and manages the new

fi ve-lane, 1.1-km William R. Bennett Bridge

in Kelowna, British Columbia, under a

30-year concession agreement.

Ovation Real Estate

Group (“Ovation”)

100% Yes 2009 2038 Operates and maintains a 2,100-seat

concert hall in downtown Montreal, under


Rainbow Hospital

Partnership

(“Rainbow”)

100% Yes 2011 2041 Designs, builds, commissions, fi nances and,

once construction is completed, will operate

and maintain certain functions of the new

Restigouche Hospital Centre for psychiatric

care in Campbellton, New Brunswick.

Rayalseema

Expressway Private

Limited (“REPL”)

36.9% Yes 2010 2040 Builds and will operate a 189-kilometre

section of a toll highway in India, under


Shariket Kahraba

Hadjret En Nouss

S.p.A. (“SKH”)

26% No 2006 N/A Owns, operates and maintains a 1,227 MW

gas-fi red thermal power plant in Algeria;

the total capacity of electricity is sold

to Sonelgaz S.p.A. under a 20-year

take-or-pay agreement.

Société d’Exploitation

de l’Aéroport

de Mayotte

S.A.S. (“Mayotte”)

100% Yes 2011 2026 Upgrades the infrastructure, builds a

new terminal building, manages and

maintain the airport under a 15-year



de Vatry Europort

(“SEVE”)

51.1% No 1999 2020 Manages and operates a cargo airport under


TC Dôme S.A.S.

(“TC Dôme”)

51% Yes 2008 2043 Will operate a 5.3 -km electric cog railway in

France once construction is completed.

N/A: not applicable




58

9.3.2 NOTABLE EVENTS RELATED TO ICIThe following notable events related to ICI took place in 2011:

> In April 2011, Société d’Exploitation de l’Aéroport de Mayotte S.A.S., a wholly-owned subsidiary of the Company, entered into an agreement

with the French government to upgrade the infrastructure and build a new terminal building for the Mayotte airport, on a French island

located in the Indian Ocean. Société d’Exploitation de l’Aéroport de Mayotte S.A.S. also has the mandate to manage and maintain the airport,

in addition to assuming the commercial development, for a 15-year period.

> In September 2011, SNC-Lavalin completed the acquisition of Macquarie Essential Assets Partnership’s (“MEAP”) 23.08% ownership

interest in AltaLink for a total consideration of $228.8 million in cash. The transaction increased the Company’s ownership of AltaLink

from 76.92% to 100%. AltaLink has technical expertise and extensive experience in Alberta, Canada, where it owns and operates regulated

transmission facilities, such as transmission lines and substations that serve 85% of Alberta’s population.

> In September 2011, Rainbow Hospital Partnership (“Rainbow”), wholly-owned by SNC-Lavalin, was awarded a public-private partnership

contract by the Government of New Brunswick for the design, construction, commissioning, fi nancing and certain operation and maintenance

functions of the new Restigouche Hospital Centre for psychiatric care in Campbellton, New Brunswick. Rainbow subcontracted the

construction of the new hospital to an SNC-Lavalin-led joint venture. It will have 140 beds in seven in-patient units with facilities for

education and research, clinical support, and administration and general support services. It will also serve as the forensic psychiatry

facility for the province. SNC-Lavalin Operations & Maintenance will provide the operation and maintenance activities for the centre for

a total of 30 years.

9.3.3 NET BOOK VALUE OF ICIGiven the signifi cant effect of ICI on the Company’s consolidated statement of fi nancial position, the Company provides additional information

in Note 5 of its 2011 audited annual consolidated fi nancial statements regarding the net book value of its ICI in accordance with the method

accounted for on SNC-Lavalin’s consolidated statement of fi nancial position. As at December 31, 2011, the Company estimates that the fair

value of its ICI is higher than their net book value, with the Company’s investment in Highway 407 and AltaLink having the highest estimated

fair values of its ICI portfolio.

AT DECEMBER 31(IN MILLIONS OF CANADIAN DOLLARS) NET BOOK VALUE

2011 2010

Highway 407 $ – $ –

AltaLink 602.0 328.2

Others 763.3 740.2

Total $ 1,365.3 $ 1,068.4

Under the equity method of accounting, distributions from a jointly controlled entity reduce the carrying amount of the investment. The equity

method of accounting requires the Company to stop recognizing its share of the losses of a jointly controlled entity when the recognition of

such losses results in a negative balance for its investment, or where dividends payable by the jointly controlled entity are in excess of the

carrying amount of the investment. In these events, the carrying value of the investment is reduced to $nil, but does not become negative,

unless the Company has incurred legal or constructive obligations or made payments on behalf of the jointly controlled entity. The excess

amount of dividends payable by a jointly controlled entity is recognized in net income of the Company.

As a result, the Company recognized in its income statement dividends from Highway 407 of $77.2 million in 2011 (2010: $50.3 million)

and did not recognize its share of Highway 407’s net income of $21.5 million (2010: $12.9 million) in the same period, as the carrying amount

of its investment in Highway 407 was $nil at December 31, 2011, December 31, 2010 and January 1, 2010.




59

9.3.4 REVENUES AND OPERATING INCOME OF THE ICI SEGMENT


Revenues from ICI $ 501.4 $ 472.3 6.2%

Operating income from ICI $ 131.2 $ 134.9 (2.7%)

The information relating to periods prior to 2010, established in accordance with Canadian GAAP, is not presented in the table because the most signifi cant impacts

for the Company of adopting IFRS relate to its ICI, as outlined in section 14.1.

The Company’s investments are accounted for by either the cost, equity or full consolidation methods depending on whether SNC-Lavalin

exercises, or not, signifi cant infl uence, joint control or control (refer to section 4.1.4 for details). The revenues included in the Company’s

consolidated income statement are infl uenced by the consolidation method applied to an ICI, as described in section 4.1.4. In evaluating the

performance of the segment, the relationship between revenues and operating income (which equals net income for ICI) is not meaningful,

as a signifi cant portion of the investments are accounted for by the cost and equity methods, which do not refl ect the line by line items of

the individual ICI’s fi nancial results.

While the Company expected the operating income from the ICI segment to remain in line in 2011 compared to 2010, excluding the 2010

net gain after taxes on disposal of Trencap and Valener, it increased, mainly due to higher dividends from Highway 407, as well as a higher

contribution from AltaLink, partially offset by the absence of contributions in 2011 from the Company’s investments in Trencap and Valener,

which were sold in the fourth quarter of 2010.




60

As supplementary information, the Company discloses, in the table below, its 16.77% proportionate share of the dividends paid by Highway 407,

its net income attributable to SNC-Lavalin shareholders from other ICI, as well as the dividends and distributions received from ICI, as this

information is useful in assessing the value of the Company’s share price.

(IN MILLIONS OF CANADIAN DOLLARS) 2011 2010 2009 2008 2007

Net income attributable to SNC-Lavalin shareholders

from ICI:

From Highway 407 $ 77.2 $ 50.3 $ 9.8 $ 20.0 $ 10.1

From a net gain on disposal of Trencap and Valener – 26.1 – – –

From other ICI 54.0 58.5 27.1 17.2 13.2

Total $ 131.2 $ 134.9 $ 36.9 $ 37.2 $ 23.3

Dividends and distributions received by SNC-Lavalin:

From Highway 407 $ 77.2 $ 50.3 $ 31.9 $ 22.6 $ 20.1

From other ICI (2) 12.2 1.6 41.4 12.8 10.4

Total $ 89.4 $ 51.9 $ 73.3 $ 35.4 $ 30.5


(2) In 2009, there was a $24.6 million special distribution from Astoria II.

10 LIQUIDITY AND CAPITAL RESOURCES

19.3%ROASE

$852million

NET CASH POSITION

$750million

FREEHOLD CASH

As discussed in section 5 of the current MD&A, achieving a ROASE at least equal to the long-term Canada Bond Yield plus 600 basis points,

and maintaining a solid fi nancial position with a net cash position suffi cient to meet expected operating, investing and fi nancing plans,

are two key fi nancial objectives of the Company.

This Liquidity and Capital Resources section has been prepared to provide the reader with a better understanding of the major components

of these fi nancial objectives and has been structured as follows:

> A fi nancial position analysis, which has been prepared with the objective of providing additional information on the major changes in the

Company’s consolidated statement of fi nancial position in 2011 and 2010;

> A review of the net cash position and freehold cash of the Company;

> A cash fl ow analysis, providing details on how the Company generated and used its cash and cash equivalents;

> A discussion on the Company’s working capital, recourse revolving credit facilities, credit ratings, and recourse debt to capital, which

all represent indicators of the Company’s fi nancial strength;

> A review of the Company’s contractual obligations and derivative fi nancial instruments, which provides additional information for a better

understanding of the Company’s fi nancial situation; and fi nally

> The presentation of the Company’s dividends declared and ROASE over the past fi ve years, as well as market indices in which the

Company’s stock is included.

(1) (1) (1)




61

These elements, as discussed in their corresponding sections below, demonstrate that the Company achieved its key fi nancial objective of

maintaining a solid fi nancial position, and has cash and cash equivalents, as well as access to suffi cient sources of funds and credit facilities

to meet its expected operating, investing and fi nancing plans, including fi nancing of business acquisitions and investments in infrastructure

concessions, share repurchases and, business growth, and to satisfying its contractual obligations.

In terms of the shareholders’ capital adequacy, the Company seeks to maintain an adequate balance between ensuring suffi cient capital

for fi nancing net asset positions, maintaining satisfactory bank lines of credit and capacity to absorb project net retained risks, while at the

same time optimizing return on equity.

10.1 FINANCIAL POSITION ANALYSIS

(IN MILLIONS OF CANADIAN DOLLARS)DECEMBER 31

2011DECEMBER 31

2010JANUARY 1

2010

Current assets $ 3,546.3 $ 3,566.5 $ 3,157.6

Non-current assets 4,807.7 3,954.3 3,432.5

Total assets 8,354.0 7,520.8 6,590.1

Current liabilities 3,514.3 2,886.6 2,720.6

Non-current liabilities 2,953.0 2,714.7 2,269.9

Total liabilities 6,467.3 5,601.3 4,990.5

Equity attributable to SNC-Lavalin shareholders 1,883.1 1,816.8 1,518.2

Non-controlling interests 3.6 102.7 81.4

Total liabilities and equity $ 8,354.0 $ 7,520.8 $ 6,590.1

10.1.1 TOTAL CURRENT ASSETSTotal current assets decreased by $20.2 million between December 31, 2010 and December 31, 2011, refl ecting primarily:

FROM ICI FROM OTHER ACTIVITIES

An increase of $45.4 million mainly refl ecting:> An increase of $30.6 million in trade receivables; and> An increase of $14.1 million in cash and cash equivalents.

A decrease of $65.6 million including mainly:> A decrease of $148.6 million in trade receivables; and> A decrease of $50.9 million in contracts in progress; partially

offset by> An increase of $101.7 million in other current fi nancial

assets; and> An increase of $44.4 million in other current assets.

Current assets increased by $408.9 million between January 1, 2010 and December 31, 2010, refl ecting primarily:


An increase of $22.0 million mainly refl ecting:> An increase of $22.4 million in other current fi nancial assets.

An increase of $386.9 million including mainly:> An increase of $226.1 million in trade receivables; and> An increase of $128.5 million in contracts in progress.




62

10.1.2 TOTAL NON-CURRENT ASSETSTotal non-current assets increased by $853.4 million from December 31, 2010 to December 31, 2011, mainly due to:


An increase of $664.5 million mainly refl ecting:> An increase of $564.9 million in property and equipment,

from AltaLink; and> An increase of $72.0 million in non-current fi nancial assets.

An increase of $188.9 million mainly refl ecting:> An increase of $97.4 million in goodwill resulting from

acquisition of businesses in 2011; and> An increase of $44.7 million in property and equipment.

Total non-current assets increased by $521.8 million from January 1, 2010 to December 31, 2010, mainly due to:


An increase of $422.0 million mainly refl ecting:> An increase of $347.6 million in property and equipment,

from AltaLink; > An increase of $45.0 million in other non-current assets; and> An increase of $29.4 million in non-current fi nancial assets.

An increase of $99.8 million including mainly:> An increase of $51.1 million in ICI accounted for by the equity or

cost methods; and> An increase $21.2 million in goodwill.

10.1.3 TOTAL CURRENT LIABILITIESTotal current liabilities increased by $627.7 million between December 31, 2010, and December 31, 2011, refl ecting the following items:


An increase of $392.6 million mainly refl ecting:> An increase of $288.6 million in non-recourse short-term debt

and current portion of non-recourse long-term debt, primarily from AltaLink; and

> An increase of $97.9 million in trade payables.

An increase of $235.1 million mainly refl ecting:> An increase of $171.1 million in deferred revenues; and> An increase of $147.9 million in trade payables; partially

offset by> A decrease of $106.2 million of downpayments in contracts.

Current liabilities increased by $166.0 million between January 1, 2010, and December 31, 2010, refl ecting the following items:


A decrease of $20.5 million including mainly:> A decrease of $12.8 million in non-recourse short-term debt and

current portion of non-recourse long-term debt, primarily from AltaLink; and

> A decrease of $7.7 million in other current fi nancial liabilities.

An increase of $186.5 million mainly refl ecting:> An increase of $221.4 million in deferred revenues; and> An increase of $92.6 million in other current fi nancial liabilities;

partially offset by> A decrease of $104.9 million in the short-term debt and current

portion of recourse long-term debt following the repayment of unsecured debentures totalling $105 million at maturity in September 2010.




63

10.1.4 TOTAL NON-CURRENT LIABILITIESTotal non-current liabilities increased by $238.3 million from December 31, 2010 to December 31, 2011, mainly refl ecting:


An increase of $135.1 million mainly refl ecting:> An increase of $57.6 million in other non-current liabilities;> An increase of $44.0 million in other non-current fi nancial

liabilities; and> An increase of $32.4 million in the non-recourse long-term debt,

primarily relating to AltaLink.

An increase of $103.2 million mainly refl ecting:> An increase of $49.6 million in deferred income tax liability; and> An increase of $46.7 million in provisions.

Total non-current liabilities increased by $444.8 million from January 1, 2010 to December 31, 2010, mainly refl ecting:


An increase of $317.8 million including mainly:> An increase of $270.6 million in the non-recourse long-term

debt, primarily relating to AltaLink.

An increase of $127.0 million mainly refl ecting:> An increase of $80.0 million in deferred income tax liability; and> An increase of $44.3 million in provisions.

10.1.5 TOTAL FINANCIAL LIABILITIESThe Company’s total fi nancial liabilities, as presented in Note 27A to the 2011 audited annual consolidated fi nancial statements,

were $4.5 billion as at December 31, 2011, compared to $4.1 billion and $3.8 billion as at December 31, 2010 and January 1, 2010, respectively.

10.1.6 TOTAL EQUITYEquity attributable to SNC-Lavalin shareholders increased by $66.3 million as at December 31, 2011, compared to December 31, 2010,

mainly refl ecting the net income attributable to SNC-Lavalin shareholders for 2011, partially offset by the acquisition of non-controlling

interests of AltaLink, and by dividends declared to SNC-Lavalin shareholders.

The increase of $298.6 million from January 1, 2010 to December 31, 2010 mainly refl ected the net income attributable to SNC-Lavalin

shareholders for 2010, partially offset by dividends declared to SNC-Lavalin shareholders.

Non-controlling interests totalled $3.6 million as at December 31, 2011, compared to $102.7 million as at the end of the previous year.

The decrease from December 31, 2010 to December 31, 2011 mainly related to the acquisition of MEAP’s 23.08% ownership interest in AltaLink,

as the carrying value of the non-controlling interests in AltaLink of $110.8 million was reduced to $nil upon completion of the transaction.

10.2 NET CASH POSITION AND FREEHOLD CASH

The Company’s net cash position, which is a non-IFRS fi nancial measure, is arrived at by excluding cash and cash equivalents from ICI and

its recourse debt from its cash and cash equivalents, and was as follows:

(IN MILLIONS OF CANADIAN DOLLARS)DECEMBER 31

2011DECEMBER 31

2010JANUARY 1

2010

Cash and cash equivalents $ 1,231.0 $ 1,235.1 $ 1,191.4

Less:

Cash and cash equivalents of ICI accounted for by the full consolidation method 30.9 16.8 15.6

Recourse debt 348.4 348.2 452.9

Net cash position $ 851.7 $ 870.1 $ 722.9

Freehold cash $ 750.0 $ 900.0 $ 800.0




64

The net cash position as at December 31, 2011 was in line with December 31, 2010.

In addition to determining its net cash position, the Company estimates its freehold cash, a non-IFRS fi nancial measure defi ned as the amount

of cash and cash equivalents not committed for its operations, investments in ICI and balance of payment for past business acquisitions.

As such, the freehold cash is derived from the cash and cash equivalents, excluding cash and cash equivalents from fully consolidated ICI

at the end of the period, adjusted for estimated cash requirements to complete existing projects and the estimated net cash infl ows from

major ongoing projects upon their completion, as well as deducting the remaining commitments to invest in ICI, and the balance of payment

for past business acquisitions. The freehold cash was approximately $750 million as at December 31, 2011, compared to approximately

$900 million as at December 31, 2010. The decrease was mainly due to cash and cash equivalents used for the acquisition of MEAP’s 23.08%

ownership interest in AltaLink, and for the acquisition of a subsidiary’s debenture as part of the same transaction, as well as the estimated

cash requirements to complete existing projects, cash used for business acquisitions, and dividends paid to SNC-Lavalin shareholders.

This decrease was partially offset by cash generated from operating activities excluding ICI.

The Company’s net cash position as at December 31, 2011 includes $22.9 million of cash and cash equivalents held in a Libyan bank. Although

the Company believes that there is risk to its current ability to repatriate such funds, the Company has no current intention of attempting

to do so or ceasing to do business in Libya and, continues to explore opportunities to resume its existing projects in Libya, as well as new

business opportunities. Accordingly, the Company believes that such cash and cash equivalents are fully available to fund its business

operations in that country. The Company will continue to assess the risks associated with the political conditions in Libya as developments

occur or the circumstances otherwise warrant.

10.3 CASH FLOWS ANALYSIS

SUMMARY OF CASH FLOWS


Cash fl ows generated from (used for):

Operating activities $ 919.6 $ 500.1

Investing activities (863.6) (475.9)

Financing activities (56.8) 31.9

Decrease in exchange differences on translating cash and cash equivalents held in foreign operations (3.3) (12.4)

Net increase (decrease) in cash and cash equivalents (4.1) 43.7

Cash and cash equivalents at beginning of year 1,235.1 1,191.4

Cash and cash equivalents at end of year $ 1,231.0 $ 1,235.1

The graph below displays the major cash fl ow items that impacted the movement of the Company’s cash and cash equivalents for the year

ended December 31, 2011. These items are further explained below.

2011 VARIATION OF CASH AND CASH EQUIVALENTS

OPE

NIN

G C

ASH

AN

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QU

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-546

-140-101

-229

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1,2311,235

+387

+191

+342

+375

(IN MILLIONS CA$)




65

Operating Activities Cash generated from operating activities increased to $919.6 million in 2011, compared to cash generated of $500.1 million in 2010, mainly refl ecting:> Cash generated by the net change in non-cash working capital items, which totalled $341.8 million

in 2011, compared to cash used of $189.5 million in 2010, primarily refl ecting lower working capital requirements; partially offset by

> Net income in 2011 of $387.3 million, compared to net income in 2010 of $487.4 million.

Investing Activities Cash used for investing activities increased to $863.6 million in 2011, compared to cash used of $475.9 million in 2010. The major investing activities were as follows:> The acquisition of property and equipment from fully consolidated ICI used a total cash outfl ow

of $545.8 million in 2011 compared to $402.0 million in 2010, due to AltaLink in both years, mainly relating to capital expenditures for transmission projects;

> The acquisition of businesses for a total cash outfl ow of $140.4 million in 2011, compared to $39.2 million in 2010;

> The cash outfl ow of $101.1 million relating to payments for ICI in 2011, refl ecting payments for Ambatovy, Astoria II, and REPL, compared to $92.7 million in 2010, refl ecting payments for Astoria II, Ambatovy and REPL; and

> The acquisition of property and equipment from other activities used a total cash outfl ow of $67.2 million in 2011 compared to $46.0 million in 2010. Approximately 47% and 54%, in 2011 and 2010 respectively, of the acquisitions of property and equipment from these activities were related to information technology; partially offset by

> Proceeds from disposals of two ICI, Valener and Trencap, for a total cash infl ow of $176.9 million, in 2010.

Financing Activities Cash used for fi nancing activities totalled $56.8 million in 2011, compared to cash generated from fi nancing activities of $31.9 million in 2010. The major fi nancing activities were as follows:> An increase in non-recourse long-term debt from ICI totaling $374.8 million in 2011, compared to

$400.6 million in 2010, mainly due to AltaLink in both years;> Dividends paid to SNC-Lavalin shareholders amounted to $126.8 million in 2011, compared to

$102.7 million in 2010, refl ecting an increase in dividends per share. The increase in dividends refl ects dividends paid of $0.84 per share in 2011, compared to $0.68 per share for 2010;

> Under its normal course issuer bid, the Company repurchased shares for a total amount of $44.3 million in 2011 (819,400 shares at an average redemption price of $54.03), compared to $47.9 million in 2010 (901,600 shares at an average redemption price of $53.18). The Company expects to be as active in repurchasing its shares in 2012. As a general practice, when managing its capital, the Company repurchases its common shares under its normal course issuer bid mainly to offset the dilutive effect of stock issuance under its stock option programs;

> The issuance of shares pursuant to the exercise of stock options generated $26.9 million of cash in 2011 (820,216 stock options at an average price of $32.84), compared to $24.3 million in 2010 (902,465 stock options at an average price of $26.98). As at March 16, 2012, there were 5,167,144 stock options outstanding with exercise prices varying from $31.59 to $57.07 per common share. At that same date there were 151,143,903 common shares issued and outstanding; and

> The acquisition of MEAP’s 23.08% ownership interest in AltaLink for a total consideration of $228.8 million in cash. As part of that transaction, the Company also acquired a subsidiary’s debenture for $50.0 million.




66

10.4 WORKING CAPITAL

WORKING CAPITAL

AT DECEMBER 31(IN MILLIONS OF CANADIAN DOLLARS, EXCEPT CURRENT RATIO) 2011 2010

Current assets $ 3,546.3 $ 3,566.5

Current liabilities 3,514.3 2,886.6

Working Capital $ 32.0 $ 679.9

Current Ratio 1.01 1.24

The working capital and current ratio decreased as at December 31, 2011 compared to the previous year, as the increase generated from

the variation in non-cash working capital items in 2011 was more than offset by cash used for fi nancing and investing activities such as

the acquisition of MEAP’s 23.08% ownership interest in AltaLink as well as the acquisition of a subsidiary’s debenture as part of the same

transaction, business acquisitions, as well as dividends paid to shareholders.

10.5 CAPITAL MANAGEMENT

SNC-Lavalin’s main objective when managing its capital is to maintain an adequate balance between:

> having suffi cient capital for fi nancing net asset positions, maintaining satisfactory bank lines of credit and capacity to absorb project net

retained risks, while at the same time,

> optimizing return on average equity attributable to SNC-Lavalin shareholders.

Maintaining suffi cient capital and access to satisfactory bank lines of credit is key to the Company’s activities, as it demonstrates the

Company’s fi nancial strength and its ability to meet its performance guarantees on multiple projects, and allows the Company to provide

letters of credit as collateral for the fulfi llment of its contractual obligations. Maintaining suffi cient capital is also a key fi nancial indicator

that allows the Company to maintain its investment grade credit rating, which results in, among other things, having access to fi nancing

arrangements at a competitive cost.

The Company defi nes its capital as its equity attributable to SNC-Lavalin shareholders excluding other components of equity plus its recourse

debt. The Company excludes other components of equity from its defi nition of capital because this element of equity results mainly from

the accounting treatment of cash fl ow hedges, including the share of comprehensive income of investments accounted for by the equity

method, and is not representative of the way the Company evaluates the management of its foreign currency risk. Accordingly, the other

components of equity are not representative of the Company’s fi nancial position.

Refer to Note 28 to the 2011 audited annual consolidated fi nancial statements for additional details regarding the Company’s management

of its capital.




67

10.6 RECOURSE DEBT AND NON-RECOURSE DEBT

Recourse debt Recourse Revolving

Credit Facility

The Company has access to committed long-term revolving lines of credit with banks, totalling $590.0 million, upon which it may either issue letters of credit, or borrow at variable rates not

exceeding the prime rate plus 0.0% (2010: 0.2%). As at December 31, 2011, $145.9 million of these

lines of credit remained unused, while the balance of $444.1 million was exclusively used for the

issuance of letters of credit. In addition, the Company has other lines of credit specifi cally available

for the issuance of letters of credit. All the above-mentioned lines of credit are unsecured and

subject to negative pledge clauses.

Recourse Debenture–

Credit Rating

On November 30, 2011, Standard & Poor’s reconfi rmed SNC-Lavalin’s debentures’ rating

of BBB+ with a stable outlook. On September 16, 2011, DBRS improved its outlook for the

Company’s debentures from BBB (high) with a stable trend to BBB (high) with a positive trend.

On February 28, 2012, following the Company’s update on the announcement of its 2011 fi nancial

results and impact on its 2011 outlook, DBRS placed SNC-Lavalin’s debentures’ rating at BBB (high) Under Review with Developing Implications. DBRS will maintain the rating under review

until it has completed its assessment. On February 29, 2012, Standard & Poor’s issued a credit

rating bulletin stating that SNC-Lavalin’s debentures’ rating was unaffected in the near-term.

Recourse

Debt-to-Capital Ratio

This ratio compares the recourse debt balance to the sum of recourse debt and equity attributable

to SNC-Lavalin shareholders, excluding other components of equity, and is a measure of the

Company’s fi nancial capabilities. As at December 31, 2011 and 2010, the Company’s recourse debt-to-capital ratio was 15:85 and 16:84, respectively, below the Company’s objective, which is

not to surpass a ratio of 30:70.

Non-recourse debt SNC-Lavalin does not consider non-recourse debt when monitoring its capital because such debt results from the full

consolidation of certain ICI held by the Company. As such, the lenders of such debt do not have recourse to the general

credit of the Company, but rather to the specifi c assets of the ICI they fi nance. The Company’s ICI accounted for using the

full and equity consolidation methods may, however, be at risk if such investments were unable to repay their non-recourse

long-term debt.

10.7 CONTRACTUAL OBLIGATIONS AND FINANCIAL INSTRUMENTS

10.7.1 CONTRACTUAL OBLIGATIONSIn the normal course of business, SNC-Lavalin has various contractual obligations. The following table provides a summary of SNC-Lavalin’s

future contractual commitments specifi cally related to short-term debt and long-term debt repayments, commitments to invest in ICI,

and rental obligations:

(IN MILLIONS OF CANADIAN DOLLARS) 2012 2013-2014 2015-2016 THEREAFTER TOTAL

Short-term debt and long-term debt repayments:

Recourse $ – $ – $ – $ 350.0 $ 350.0

Non-recourse from ICI 327.4 344.1 203.4 1,026.2 1,901.1

Commitments to invest in ICI 159.1 – – – 159.1

Rental obligations under long-term operating leases 89.5 145.4 102.8 100.0 437.7

Total $ 576.0 $ 489.5 $ 306.2 $ 1,476.2 $ 2,847.9

Additional details of the future principal repayments of the Company’s recourse and non-recourse short-term debt and long-term debt are

provided in Note 17D to the Company’s 2011 audited annual consolidated fi nancial statements. The commitments to invest in ICI result from

SNC-Lavalin not being required to make its contribution immediately when investing, but instead contributing over time, as detailed in Note 5D

to its 2011 audited annual consolidated fi nancial statements. The commitments to invest in ICI are recognized for investments accounted for by

the equity or cost methods and mainly relate to MIHG, Ambatovy and Chinook. Information regarding the Company’s minimum lease payments

for annual basic rental under long-term operating leases can be obtained in Note 31 to its 2011 audited annual consolidated fi nancial statements.




68

10.7.2 FINANCIAL INSTRUMENTSThe Company discloses information on the classifi cation and fair value of its fi nancial instruments, as well as on the nature and extent of risks

arising from fi nancial instruments, and related risk management in Note 27 to its 2011 audited annual consolidated fi nancial statements.

DERIVATIVE FINANCIAL INSTRUMENTS FINANCIAL ARRANGEMENT

SNC-Lavalin enters into derivative fi nancial instruments, namely: i) forward currency exchange contracts to hedge its exposure to fl uctuations in foreign currency exchange rates on projects; and ii) interest-rate swaps to hedge the variability of interest rates relating to fi nancing arrangements.

The Company has a fi nancial arrangement with an investment grade fi nancial institution to limit its exposure to the variability of its cash-settled share-based payment arrangements caused by fl uctuations in its share price (refer to Note 21C to the 2011 audited annual consolidated fi nancial statements).

All fi nancial instruments are entered into with sound fi nancial institutions, which SNC-Lavalin anticipates will satisfy their obligations under the contracts.

The Company does not hold or issue any derivative instruments for speculative purposes, but rather for hedging purposes only. The derivative

fi nancial instruments are subject to normal credit terms and conditions, fi nancial controls and management and risk monitoring procedures.

10.8 DIVIDENDS DECLARED

The Board of Directors has decided to increase the quarterly cash dividend payable to shareholders from $0.21 per share to $0.22 per share for the fourth quarter of 2011, resulting in total cash dividends declared of $0.85 per share relating to 2011. The table below

summarizes the dividends declared for each of the past fi ve years:

DIVIDENDS DECLARED PER SHARE(IN CA$)

Dividends per share declared to SNC-Lavalin shareholders (1)

Dividend increase in %

07 08 09 10 11

0.39

0.51

0.62

0.72

0.85

30% 31%

22%

16%18%

(1) The dividends declared are classifi ed in the period for which the fi nancial results are publicly announced, notwithstanding the declaration or payment date.

Total cash dividends paid in 2011 were $126.8 million, compared to $102.7 million in 2010. The Company has paid quarterly dividends for

22 consecutive years and has increased its yearly dividend paid per share for each of the past 11 years.




69

10.9 MARKET INDICES

SNC-Lavalin is listed on the Toronto Stock Exchange under the symbol “SNC” and is included in the S&P/TSX Composite Index, which is the

principal broad market measure for the Canadian equity markets. In addition, the Company’s stock is part of the following two S&P/TSX indices:

INDICES DESCRIPTION

S&P/TSX 60 Index Comprised of 60 large Canadian publicly-traded companies with a view to matching the sector balance of the S&P/TSX Composite Index

S&P/TSX Canadian Dividend Aristocrats Index

Designed to measure the performance of S&P Canada Broad Market Index (“BMI”) constituents, which have consistently increased dividends annually for at least fi ve years. The index consists of approximately 40 stocks and tracks Canada’s most consistent dividend-raisers. The Company’s stable and increasing dividends signal that management has confi dence in the Company’s strength and growth.

10.10 RETURN ON AVERAGE SHAREHOLDERS’ EQUITY (“ROASE”)

ROASE, a non-IFRS fi nancial measure, is a key performance indicator used to measure the Company’s return on equity. ROASE, as calculated

by the Company, corresponds to the trailing 12-month net income attributable to SNC-Lavalin shareholders, divided by a trailing 13-month

average equity attributable to SNC-Lavalin shareholders, excluding “other components of equity”.

The Company excludes “other components of equity” because it results mainly from the accounting treatment of cash fl ow hedges, and is

not representative of the way the Company evaluates its management of its foreign currency exchange risk, and is not representative of the

Company’s fi nancial position.

For 2011 and 2010, ROASE was signifi cantly higher than the Company’s objective of long-term Canada Bond Yield plus 600 basis points.

The graph below illustrates that the Company generated a ROASE of 16.4% or better per year over the past fi ve years, surpassing its target

mentioned above by at least an additional 600 basis points each year. The Company strives to position itself to achieve a consistently high

ROASE while maintaining a solid fi nancial position, which it has achieved over the last years.

ROASE

Actual ROASE ROASE target (Canada long-term bonds + 600 basis points)

07 08 09 10 11

10.3% 10.1% 9.9% 9.8% 9.3%

16.4%

29.1% 27.3%28.4%

19.3%





70

11 RELATED PARTY TRANSACTIONSIn the normal course of its operations, SNC-Lavalin enters into transactions with certain of its ICI. Investments in which SNC-Lavalin has

signifi cant infl uence or joint control, which are accounted for by the equity method, are considered related parties, consistent with IFRS.

Consistent with IFRS, intragroup profi ts generated from revenues with ICI accounted for by the equity or full consolidation methods are

eliminated in the period they occur, except when such profi ts are deemed to have been realized by the ICI. Profi ts generated from transactions

with ICI accounted for by the cost method are not eliminated, in accordance with IFRS.

The accounting treatment of intragroup profi ts is summarized below:

ICI ACCOUNTING METHOD ACCOUNTING TREATMENT OF INTRAGROUP PROFITS

AltaLink Full consolidation method Not eliminated upon consolidation in the period they occur, as they are considered

realized by AltaLink via legislation applied by an independent government

regulatory body.

ICI accounted for

under IFRIC 12

Full consolidation method Not eliminated upon consolidation in the period they occur, as they are considered

realized by the ICI through the contractual agreement with its client.

Equity method Not eliminated upon consolidation in the period they occur, as they are considered

realized by the ICI through the contractual agreement with its client.

Others Equity method Eliminated in the period they occur, as a reduction of the underlying asset and

subsequently recognized over the depreciation period of the corresponding asset.

Cost method Not eliminated, in accordance with IFRS.

For the year ended December 31, 2011, SNC-Lavalin recognized revenues of $559.5 million (2010: $306.3 million) from contracts with ICI

accounted for by the equity method. SNC-Lavalin also recognized income from these ICI, which represents the Company’s share of net

income from these ICI, of $102.8 million for the year ended December 31, 2011 (2010: $76.9 million). Intragroup revenues generated from

transactions with AltaLink, which amounted to $419.6 million for the year ended December 31, 2011 (2010: $263.7 million), were eliminated

upon consolidation, while profi ts from those transactions were not eliminated.

SNC-Lavalin’s trade receivables from these ICI accounted for by the equity method amounted to $43.7 million as at December 31, 2011

(December 31, 2010: $12.0 million and January 1, 2010: $102.8 million). SNC-Lavalin’s other non-current fi nancial assets receivables from

these ICI accounted for by the equity method amounted to $83.0 million as at December 31, 2011 (December 31, 2010: $25.5 million and

January 1, 2010: $nil). SNC-Lavalin’s remaining commitment to invest in these ICI accounted for by the equity method was $129.0 million

at December 31, 2011 (December 31, 2010: $178.6 million and January 1, 2010: $78.3 million).

All of these related party transactions are measured at fair value.




71

12 SHAREHOLDERS AND EMPLOYEE SHAREHOLDINGSThe Company’s shares are held by a variety of different shareholders, including its employees. The majority of the Company’s shares are held

by institutional investors and based on the most recent publicly available information as at March 16, 2012, the only investor who owns or

exercises control or direction over shares carrying more than 10% of the voting rights attached to all shares of the Company is Jarislowsky,

Fraser Limited, a fund manager, representing approximately 14.4% of the outstanding common shares of the Company.

The Company encourages its employees to invest in its shares by offering multiple programs, detailed in the table below:

PLAN DESCRIPTION ELIGIBLE PARTICIPANTS

Stock Option Plans Stock options are granted to selected employees based on recommendations of the

executive management and approved by the Board of Directors. Stock options issued

since 2007 have a fi ve-year term and are vesting in three equal tranches of two years,

three years and four years, respectively, after grant date.

Selected key employees

Employee Share

Ownership

Program (“ESOP”)

The Company’s voluntary common share purchase plan, provides for a matching

contribution by the Company of 35% of the participant’s contribution, up to 10% of

the employee’s base salary. SNC-Lavalin’s contributions are paid in two payments

of 15% and 20% respectively in the second and third year following the employee’s

contribution of a given year.

All regular employees

in Canada and some

regular employees in the

United States, France, Belgium,

the United Kingdom, Australia

and Saudi Arabia

Management

Share Ownership

Program (“MSOP”)

Plan under which the selected participants can elect to contribute 25% of their gross

bonus toward the purchase of the Company’s common shares, with the Company

matching the participant’s contributions in equal installments over a period of fi ve

years, which is also the vesting period.

Selected key employees,

based on their responsibilities

and performance

The Company also provides incentive compensation plans based on the value of its share price to certain of its employees, such as:

PLAN DESCRIPTION ELIGIBLE PARTICIPANTS

2009 Deferred Share

Unit Plan (“2009 DSU”)

Plan under which participants are granted units based on salary and the share price at

time of grant. Units vest over a period of fi ve years, at the rate of 20% per year. Vested

units are redeemable in cash within 30 days, one year following the participant’s last

day of employment. The redemption price is based on a 12-week average of the share

price, determined one year following the participant’s last day of employment. In the

event of death or eligibility for retirement, units vest immediately.

Key executives

2009 Performance Share

Unit Plan (“2009 PSU”)

Plan under which participants are granted units based on salary and the share price

at time of grant. Units fully vest at the end of the third calendar year following the

date of grant. At that time, the number of units initially granted is adjusted by a

multiplier based on the three-year cumulative annualized growth in earnings per

share. The redemption price is based on the share price at the time of vesting. Units

are redeemable in cash at the redemption price, or convertible to vested units of 2009

DSU. In the event of death or eligibility for retirement, units vest immediately.

Key executives

Restricted Share

Unit Plan (“RSU”)

Plan under which selected participants are granted units which vest at the end of a

three-year period. Vested units are redeemable in cash based on the share price at that

time. In the event of death or eligibility for retirement, the units vest on a pro-rata basis,

with no payment made until the end of the vesting period.

Selected employees

As at December 31, 2011, the holdings from the ESOP and MSOP plans coupled with private holdings of the reporting insiders, as defi ned under

National Instrument 55-104 Insider Reporting Requirements and Exemptions of the Ontario Securities Commission as individuals generally

required to fi le reports disclosing information about transactions involving the Company’s securities or related fi nancial instruments, and

for which the Company maintains records, totalled 3.8% of the Company’s total outstanding shares as at December 31, 2011, compared to

3.6% as at December 31, 2010.




72

13 CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Company’s accounting policies, which are described in Note 2 to the Company’s 2011 audited annual consolidated

fi nancial statements, management is required to make judgments, estimates, and assumptions about the carrying amounts of assets and

liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience

and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period

in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects

both current and future periods.

The key estimates concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a

signifi cant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fi nancial year are described

in detail in Note 3 to the Company’s 2011 audited annual consolidated fi nancial statements.

14 ACCOUNTING POLICIES AND CHANGES

14.1 FIRST-TIME ADOPTION OF IFRS

In February 2008, the Canadian Accounting Standards Board (“AcSB”) announced the changeover from Canadian GAAP to IFRS for Canadian

publicly accountable enterprises for interim and annual fi nancial statements relating to fi scal years beginning on or after January 1, 2011.

As such, the year 2011 is the fi rst year for which consolidated fi nancial statements have been prepared under IFRS. The 2010 comparative

fi gures and the Date of Transition opening statement of fi nancial position have been restated as per the guidance provided in IFRS 1, First-Time Adoption of International Financial Reporting Standards (“IFRS 1”). See Note 35 to the Company’s 2011 audited annual consolidated fi nancial

statements for quantitative reconciliations between Canadian GAAP and IFRS.

The most signifi cant impacts of adopting IFRS related to: i) the presentation of the net income attributable to SNC-Lavalin shareholders

separately from the net income attributable to non-controlling interests; ii) the accounting for its jointly controlled entities for ICI, accounted

for under IAS 31; and iii) the accounting for the Company’s ICI that are accounted for under IFRIC 12. The transition to IFRS had an impact

on the Company’s ICI, but a limited impact on the Company’s other activities.

Following the Independent Review described in section 1.1, the Company adjusted its 2010 IFRS fi nancial information to refl ect a correction

in 2010 related to certain payments described below.

In 2010, $20 million in payments made, under what is presumed to be an agency agreement, were charged and documented to a construction

project to which they did not relate. Because these payments were documented to a construction project to which they did not relate, and

that there is no direct and conclusive evidence on the use and purpose of these payments or the nature of the services rendered in connection

therewith, the Company concluded that these payments should be treated as period expenses (i.e., not generating revenues) for accounting

purposes.

The 2010 payments accounted for as period expenses, net of the effect resulting from an increased forecasted gross margin following the

exclusion of the payments from the project costs on the project that the payments were originally allocated to, resulted in a reduction in

net income of $17.9 million in 2010 ($0.12 per share on both a basic and diluted basis). The Company decided to correct its prior period

comparative fi nancial information in its fi rst issuance of annual audited consolidated fi nancial statements prepared in accordance with IFRS.




73

While the Company did not apply IFRS to fi nancial information prior to January 1, 2010, the unaudited estimated impact for 2009 of IAS 31,

mainly attributable to the change of consolidation method for Highway 407, and IFRIC 12 would have been as follows:

(IN MILLIONS OF CANADIAN DOLLARS) 2009

FIRST QUARTER

SECOND QUARTER

THIRD QUARTER

FOURTH QUARTER TOTAL

Decrease in revenues $ (8.9) $ (9.4) $ (14.6) $ (12.9) $ (45.8)

Increase in net income $ 9.1 $ 9.3 $ 8.8 $ 7.6 $ 34.8

Based on the quantifi ed impacts of the transition to IFRS on 2010 and 2009, the impact of the transition to IFRS is deemed not signifi cant

on the Company’s other activities for the comparative fi gures of 2007 and 2008 disclosed in this MD&A.

The Company established its accounting policies and methods used in the preparation of its 2011 audited annual consolidated fi nancial

statements in accordance with IFRS. See Note 2 to the Company’s 2011 audited annual consolidated fi nancial statements for more information

about the signifi cant accounting principles used to prepare the fi nancial statements.

14.2 STANDARDS AND INTERPRETATIONS ISSUED TO BE ADOPTED AT A LATER DATE

The following standards and amendments to existing standards have been issued and are applicable to the Company for its annual periods

beginning on or after January 1, 2013, with earlier application permitted:

> IFRS 10, Consolidated Financial Statements, (“IFRS 10”) replaces IAS 27, Consolidated and Separate Financial Statements, and SIC-12,

Consolidation — Special Purpose Entities, and establishes principles for identifying when an entity controls other entities.

> IFRS 11, Joint Arrangements, (“IFRS 11”) supersedes IAS 31, Interests in Joint Ventures, and SIC-13, Jointly Controlled Entities — Non-monetary Contributions by Venturers, and requires a single method to account for interests in jointly controlled entities.

> IFRS 12, Disclosure of Interests in Other Entities, (“IFRS 12”) establishes comprehensive disclosure requirements for all forms of interests

in other entities, including joint arrangements, associates, and special purpose vehicles.

> IFRS 13, Fair Value Measurement, provides a single source of fair value measurement and disclosure requirements in IFRS.

> Amended and re-titled IAS 27, Separate Financial Statements, and IAS 28, Investments in Associates and Joint Ventures, as a consequence

of the new IFRS 10, IFRS 11 and IFRS 12.

> Amendments to IAS 1, Presentation of Financial Statements, to require entities to group items within other comprehensive income that

may be reclassifi ed to net income.

> Amendments to IAS 19, Employee Benefi ts, to eliminate the corridor method that defers the recognition of gains and losses, to streamline

the presentation of changes in assets and liabilities arising from defi ned benefi t plans and to enhance the disclosure requirements for

defi ned benefi t plans.

The following standard has been issued and is applicable to the Company for its annual periods beginning on or after January 1, 2015, with

earlier application permitted:

> IFRS 9, Financial Instruments, covers the classifi cation and measurement of fi nancial assets and fi nancial liabilities.

The Company is currently evaluating the impact of adopting these standards and amendments on its fi nancial statements.




74

15 RISKS AND UNCERTAINTIESThe Company is subject to a number of risks and uncertainties in carrying out its activities and you should carefully consider the risks

and uncertainties below before investing in its securities. Additional risks not currently known or that the Company currently believes are

immaterial may also impair its business, results of operations, fi nancial condition and liquidity.

OVERVIEWSNC-Lavalin’s business is conducted under various types of contractual arrangements, including cost-plus, fi xed-fee, and fi xed-price contracts, as well as investments in infrastructure concessions. SNC-Lavalin has developed and applies rigorous risk assessment, mitigation and management practices to reduce the nature and extent of the fi nancial, technical and legal risks under each of these types of contractual agreements.

Prior to submitting a proposal for a fi xed-price project that exceeds a certain revenue threshold and/or contains elements considered to have a high or unusual risk, the proposal must be reviewed and analyzed by a Risk Evaluation Committee (“REC”). The REC is composed of managers with appropriate know-how who are responsible for recommending a course of action to both the proposal team as well as senior management for the project under consideration. In addition, proposals for projects exceeding a certain threshold must also be reviewed by the Company’s Bid and Investment Approval Committee (“BIAC”). The BIAC is composed of senior executives and, under certain circumstances, is expanded to include members of the Company’s Board of Directors when certain levels are reached or under specifi c circumstances. The BIAC also reviews proposed acquisitions or dispositions of businesses and ICI.

As a result of the involvement of the REC and BIAC in a wide variety of projects, both committees are capable of bringing to the proposal team all lessons learned from other past and ongoing projects. This is an important method of bringing the latest developments directly to the attention of the proposal team for its consideration and action.

In addition to the REC and BIAC, there are committees in charge of analyzing, among other factors, project proposals and performances at the divisional level, as well as peer reviews scheduled throughout the duration of certain selected projects.

SERVICES, PACKAGES, AND O&MSNC-Lavalin’s continued commitment to sound risk management practices when undertaking Services, Packages, and O&M type contracts, includes technical risk assessments, rigorous drafting and legal review of contracts, applying stringent cost and schedule control to projects, the regular review of project forecasts to complete, the structuring of positive cash fl ow arrangements on projects, securing project insurance, obtaining third party guarantees, being selective when choosing partners, subcontractors and suppliers and other risk mitigating measures. Maintaining insurance coverage for various aspects of its business and operations is an important element in SNC-Lavalin’s risk management process. SNC-Lavalin elects, at times, to retain a portion of losses that may occur by applying selective self-insurance practices and professionally managing such retention through its regulated captive insurance companies.




75

ICIIn accordance with its business strategy, SNC-Lavalin makes select investments in infrastructure concessions, for which its technical, engineering and construction, project management, and O&M expertise, along with its experience in arranging project fi nancing, represent a distinct advantage.

Such investments give rise to risks and uncertainties, detailed below, that are mitigated by sound risk management practices applied when investing in infrastructure concessions, such as:

> Independence of the Investment group from the engineering, construction, and O&M groups within SNC-Lavalin;

> Detailed review and structuring of concession contract arrangements;

> Detailed analysis of the risks specifi c to each investment, such as construction, operation, environment, and supply and demand estimates;

> Ensuring, when applicable, the fi nancial strength of equity partners, as well as ensuring that SNC-Lavalin’s interests in the concession are well aligned with those of its equity partners;

> In-depth fi nancial modelling performed in-house, coupled with independent third party modelling review; and

> Review by independent third party consultants of fi nancial projections and forecasts performed in-house.

Despite all efforts deployed to mitigate risks and uncertainties, there is no guarantee that such mitigating factors will be effective and that

there will be no impact on the Company’s fi nancial results and position if such risks or uncertainties materialized.

COST OVERRUNS

SNC-Lavalin benefi ts from cost savings, but bears the risk for cost overruns from fi xed-price contracts. Contract revenues and costs are

established, in part, based on estimates which are subject to a number of assumptions, such as those regarding future economic conditions,

productivity, performance of our people and of subcontractors or equipment suppliers, price, availability of labour, equipment and materials

and other requirements that may affect project costs or schedule, such as obtaining the required environmental permits and approvals on

a timely basis. The risk of cost overruns is mitigated by regular and proactive monitoring by employees with appropriate expertise, regular

review by senior management, and by securing the purchase price of certain equipment and material with suppliers. Cost overruns may also

occur when unforeseen circumstances arise.

PROJECT PERFORMANCE

In certain instances, SNC-Lavalin may guarantee a client that it will complete a project by a scheduled date or that a facility will achieve

certain performance standards. As such, SNC-Lavalin may incur additional costs, should the project or facility subsequently fail to meet

the scheduled or performance standards.

LABOUR FACTORS

The success of SNC-Lavalin ultimately depends on its workforce and the ability to attract and retain qualifi ed personnel in a competitive work

environment. The inability to attract and retain qualifi ed personnel could result in, among other factors, lost opportunities, cost overruns,

failure to perform on projects and inability to mitigate risks and uncertainties. This risk is mitigated by providing diversifi ed and compelling

career opportunities, a safe and healthy work environment, as well as competitive compensation and benefi ts.

Also, a portion of the Company’s workforce is unionized, mainly in its O&M and Power segments, and unionized employees are working for

various subcontractors. The Company’s or its subcontractors’ inability to reach satisfactory labour agreements, or a failure in a negotiation

process with a union, could result in a strike, partial work stoppages, or other labour actions, potentially affecting the performance and

execution of one or more projects.

JOINT VENTURE PARTNERS

SNC-Lavalin undertakes certain contracts with joint venture partners. The success of its joint ventures depends on the satisfactory performance

of SNC-Lavalin’s joint venture partners in their joint venture obligations. The failure of the joint venture partners to perform their obligations

could impose additional fi nancial and performance obligations on SNC-Lavalin that could result in increased costs.




76

DELIVERY FROM SUBCONTRACTORS AND SUPPLIERS

SNC-Lavalin undertakes contracts as Packages activities wherein it subcontracts a portion of the project or the supply of material and

equipment to third parties. Should the subcontractors or suppliers fail to meet these standards by not delivering their portion of a project

according to the contractual terms, including not meeting the delivery schedule or experiencing a deterioration of their fi nancial conditions,

the ability of SNC-Lavalin to perform and/or to achieve the anticipated profi tability on the project may be impacted. This risk is managed

by rigorously selecting the third party subcontractors and suppliers, by proactively monitoring the project schedules and budgets and by

obtaining letters of credit or other guarantees.

CONCESSIONAIRE RISK

When SNC-Lavalin holds an ownership interest in an infrastructure concession, it assumes a degree of risk associated with the fi nancial

performance of the ICI during the concession period. Erosion of the Company’s investment value in such concessions is dependent on the

ability of the concession to attain its revenue and cost projections as well as the ability to secure fi nancing, both of which can be infl uenced

by numerous factors, some partially beyond the concessionaire’s control, such as, but not limited to, political or legislative changes, lifecycle

maintenance, traffi c demand, when applicable, operating revenues, collection success and cost management. While ICI often have measures

in place to mitigate their own risks, the value of the investments in these infrastructure concessions can be impaired. However, when investing

in infrastructure concessions, the Company typically structures such transactions with debt fi nancing that is non-recourse to the general

credit of the Company, which also mitigates the potential impact on its fi nancial results and position.

CONTRACT AWARDS

Obtaining new contract awards, which is a key component for the sustainability of profi ts, is a risk factor in a competitive environment.

SNC-Lavalin’s globally recognized technical expertise and diversity of activities, segments and geographic base are mitigating factors in

this environment.

BACKLOG

Backlog includes contract awards that are considered fi rm and is thus an indication of future revenues. However, there can be no assurance

that cancellations or scope adjustments will not occur, that the revenue backlog will ultimately result in earnings or when revenues and

earnings from such backlog will be recognized.

FOREIGN CURRENCY RISK

The Company’s activities outside Canada expose SNC-Lavalin to foreign currency exchange risks, which could adversely impact its operating

results. SNC-Lavalin has a hedging strategy in place to protect itself against foreign currency exposure. The hedging strategy includes the use

of forward foreign exchange contracts, which contain an inherent credit risk related to default on obligations by the counterparty. SNC-Lavalin

reduces this credit risk by entering into foreign exchange contracts with sound fi nancial institutions, which SNC-Lavalin anticipates will

satisfy their obligations under the contracts.

INTEREST RATE RISK

The Company’s non-recourse debt from ICI and recourse debt from other activities are interest-bearing and therefore, can be affected

by fl uctuations in interest rates.

ICI usually reduce their exposure to interest rate risk by entering into fi xed-rate fi nancing arrangements or by hedging the variability of interest

rates through derivative fi nancial instruments. Fixing the interest rates gives the ICI stable and predictable fi nancing cash outfl ows, which

are usually structured to match the expected timing of their cash infl ows. As a result, the changes in interest rates do not have a signifi cant

impact on SNC-Lavalin’s consolidated net income.

The Company’s recourse debt bears interest at a fi xed rate and is measured at amortized cost, therefore, the Company’s net income is not

exposed to a change in interest rates on these fi nancial liabilities.




77

CREDIT RISK AND DELAY IN COLLECTION

Credit risk corresponds to the risk of loss due to the client’s inability to fulfi ll its obligations with respect to trade receivables, contracts

in progress and other fi nancial assets. Delay in collection occurs when payments from clients exceed the contractually agreed payment

terms. SNC-Lavalin’s capability to structure positive cash fl ow arrangements on projects signifi cantly reduces the credit risk on certain

projects. Furthermore, while a client may represent a material portion of trade receivables and contracts in progress at any given time,

the concentration of credit risk is limited due to the large number of clients comprising SNC-Lavalin’s revenue base, and their dispersion

across different industry segments and geographic areas.

SNC-Lavalin’s objective is to reduce credit risk by ensuring collection of its trade receivables on a timely basis. SNC-Lavalin internally allocates

imputed interest to provide an incentive to project managers to collect trade receivables, as uncollected balances result in an internal cost

for the related project, and as such, impacts the profi tability of projects and of the associated operating segment, which is used to determine

managers’ compensation.

INFORMATION TECHNOLOGY

Information is critical to SNC-Lavalin’s success. The integrity, reliability and security of information in all forms are critical to the Company’s

daily and strategic operations. Inaccurate, incomplete or unavailable information and/or inappropriate access to information could lead to

incorrect fi nancial and/or operational reporting, poor decisions, delayed reaction times to the resolution of problems, privacy breaches and/or

inappropriate disclosure or leaking of sensitive information. The development of policies and procedures pertaining to security access, system

development and change management is implemented with a view to enhancing and standardizing the controls to manage the information

management risk. Recognizing the value of information, the Company is committed to managing and protecting it wisely, responsibly and

cost effectively. The Company strives to improve upon its procedures and software in the control of project budgets and schedules, as well

as the overall process of risk management. Important focus is put on continuous training of the Company’s employees so they will have the

best tools and software to better manage projects.

INTERNAL CONTROLS

SNC-Lavalin maintains accounting systems and internal controls over fi nancial reporting and disclosure controls and procedures. There are

inherent limitations to any control framework, as controls can be circumvented by acts of individuals, intentional or not, by collusion of two

or more individuals, by management override of controls, by lapses in judgment and breakdowns resulting from human error. There are no

systems or controls that can provide absolute assurance that all fraud, errors, circumvention of controls or omission of disclosure can and

will be prevented or detected. Such fraud, errors, circumvention of controls or omission of disclosure could result in a material misstatement

of fi nancial information.

As described in the “Controls and Procedures” section of this MD&A, based in part on the Independent Review, management of the Company

has identifi ed certain material weaknesses relating to the design and operational effectiveness of the Company’s internal control over fi nancial

reporting and has determined that the Company’s disclosure controls and procedures and internal control over fi nancial reporting were

not effective, in both cases, as at December 31, 2011. Management has identifi ed and, in certain instances, begun to implement a number

of measures to address these material weaknesses and strengthen the Company’s internal control over fi nancial reporting, as more fully

described in the “Controls and Procedures” section. However, such measures may not be effective and the Company could face additional

risks and/or unknown losses.

ECONOMIC AND POLITICAL CONDITIONS

A signifi cant portion of SNC-Lavalin’s revenues are attributable to projects in international markets, which exposes SNC-Lavalin to a number

of risks such as uncertain economic and political conditions in the countries in which SNC-Lavalin does business, restrictions on the right to

convert and repatriate currency, political risks, and the lack of well-developed legal systems in some countries, which could make it diffi cult

to enforce SNC-Lavalin’s contractual rights. SNC-Lavalin has over 40 years of involvement in international markets, which provides a valuable

source of experience in assessing risks related to the international economic and political conditions.

HEALTH AND SAFETY RISK

SNC-Lavalin’s activities encompass a responsibility for health and safety. A lack of strong safety practices by SNC-Lavalin or its subcontractors

may expose SNC-Lavalin to lost time on projects, penalties, lawsuits, and may impact future project awards as certain clients will take into

account health and safety records when selecting suppliers. SNC-Lavalin has programs in place and policies and procedures that must be

followed to ensure all its employees and subcontractors are fully committed to recognizing and understanding the hazards of their work

site, assessing the risks with competence and mitigating the potentially harmful outcomes. Furthermore, the Company’s Board of Directors

has established a Board committee to oversee all aspects of health and safety and environment.




78

ENVIRONMENTAL RISK

SNC-Lavalin, in providing engineering and construction, and O&M expertise and investing in infrastructure concession entities, is exposed

to various environmental risks and is subject to complying with environmental laws and regulations which vary from country to country

and are subject to change. The Company’s inability to comply with environmental laws and regulations could result in penalties, lawsuits

and potential harm to its reputation. While mitigating its environmental risk through its monitoring of environmental laws and regulations

and the expertise of its professionals in the environmental sector, SNC-Lavalin is committed to helping its clients continuously improve

the integration of environmental protection issues into all their activities, both in Canada and abroad. Furthermore, the Company’s Board of

Directors has established a Board committee to oversee all aspects of health and safety and environment.

REPUTATIONAL RISK

The consequence of reputational risk is a negative impact to the Company’s public image, which may infl uence its ability to obtain future

projects. Reputational risk may arise under many situations including, among others, quality or performance issues on the Company’s

projects, a poor health and safety record, non-compliance with laws or regulations by the Company’s employees, agents, subcontractors,

suppliers and/or partners, and creation of pollution and contamination. Prior to accepting work on a particular project, the Company mitigates

reputational risk by performing due diligence, which includes a review of the client, the country, the scope of the project and local laws and

culture. Once the decision to participate in a project has been taken, the corporate risk management process continues to mitigate reputational

risk during both the proposal and execution stages through regular reviews including the Company’s Risk Evaluation Committee, and Bid and

Investment Approval Committee process, and Audit Committee reviews, peer reviews and internal audits.

BUSINESS ACQUISITIONS

The integration of a business acquisition can be a challenging task that includes, but is not limited to, realization of synergies, cost management

to avoid duplication, information systems integration, staff reorganization, establishment of controls, procedures, and policies, as well as

cultural alignment. The inability to adequately integrate an acquired business in a timely manner might result in departures of qualifi ed

personnel, lost business opportunities and/or higher than expected integration costs. SNC-Lavalin manages this risk by selectively acquiring

businesses with strong management and compatible culture and values, performing extensive due diligence procedures prior to completing

any business acquisition and using its extensive experience from previous business integrations.

REGULATORY AND LEGAL RISK

Given the nature of its operations and its global geographic presence, the Company is subject to various rules, regulations, laws, and other

legal requirements, enforced by governments or other authorities. Misconduct, fraud, non-compliance with applicable laws and regulations or

other improper activities by an employee, agent, supplier, subcontractor and/or partner of the Company or further regulatory developments,

namely abrupt changes in foreign government policies and regulations, could have a signifi cant adverse impact on the Company’s results.

Although it is not possible to predict the changes that may arise, SNC-Lavalin ensures it has in-depth knowledge of the actual rules and

regulations of the industries and countries in which it performs activities.

ANTI-BRIBERY LAWS

As part of the regulatory and legal environments in which it operates, the Company is subject to anti-bribery laws that prohibit improper

payments directly or indirectly to government offi cials, authorities or persons defi ned in those anti -bribery laws in order to obtain or retain

business or other improper advantages in the conduct of business.

Our policies mandate compliance with anti-bribery laws. Failure by our employees, agents, subcontractors, suppliers and/or partners to

comply with anti-bribery laws could impact the Company in various ways that include, but are not limited to, criminal, civil and administrative

legal sanctions and could have a signifi cant adverse impact on the Company’s results.

LITIGATION AND LEGAL MATTERS

In the normal course of business, the Company is involved in various litigation, claims, and legal actions and proceedings, which arise from

time to time, and that can implicate, although not exclusively, subcontractors, suppliers, employees and clients. Litigation and legal matters

are subject to many uncertainties, and the outcome of individual matters is not predictable with assurance. SNC-Lavalin mitigates this risk

by rigorous drafting and legal review of contracts and agreements, relying on the expertise of both internal and external legal resources,

as well as maintaining proper insurance coverage.




79

INDEPENDENT REVIEW

In February 2012, the Board of Directors initiated the Independent Review, led by its Audit Committee, of the facts and circumstances surrounding

certain payments that were documented (under certain agreements presumed to be agency agreements, the “Representative Agreements”)

to construction projects to which they did not relate, and certain other contracts. On March 26, 2012, The Company announced the results

of the Independent Review and related fi ndings and recommendations of the Audit Committee to the Board of Directors. The Company’s

senior management and Board of Directors have been required to devote signifi cant time to the Independent Review and related matters

which has been distracting from the conduct of the Company’s daily business and signifi cant expenses have been incurred in connection

with the Independent review including substantial fees of lawyers and other advisors. In addition, the Company and/or employees of the

Company could become the subject of investigations by law enforcement and/or regulatory authorities in respect of the matters that were

the subject of the Independent Review which, in turn, could require the devotion of additional time of senior management and other resources.

As described in the Independent Review Summary, in the absence of direct and conclusive evidence, the use and purpose of the payments or

nature of the services rendered or actions taken under these Representative Agreements could not be determined with certainty. However,

the absence of conclusive fi ndings of the Independent Review does not exclude the possibility that, if additional facts that are adverse to the

Company became known, including matters beyond the scope of the Representative Agreements that were the subject of the Independent

Review, sanctions could be brought against the Company in connection with possible violations of law or contracts. The consequences of

any such sanctions or other actions, whether actual or alleged, could adversely affect our business and the market price of our publicly

traded securities. In addition, the Independent Review and any negative publicity associated with the Independent Review, could damage

our reputation and ability to do business. For more information please refer to section 1.1 “Recent Developments – Independent Review.”

16 LEGAL PROCEEDINGSOn March 1, 2012, a proposed class action lawsuit was fi led with the Quebec Superior Court, on behalf of persons who acquired SNC-

Lavalin securities from and including March 13, 2009 through and including February 28, 2012, whether in a primary market offering or in

the secondary market. The Motion for authorization alleges that certain documents issued by SNC-Lavalin between these dates contained

misrepresentations. The Motion seeks leave from the Superior Court to bring a statutory misrepresentation claim under Quebec’s Securities

Act and the equivalent provisions contained in the various other Canadian provinces’ securities legislation. The proposed action claims

damages equivalent to the decline in market value of the securities purchased by class members when SNC-Lavalin issued a press release

dated February 28, 2012, as well as the costs of administering the plan to distribute recovery pursuant to the class action. Due to the inherent

uncertainties of litigation, it is not possible to predict the fi nal outcome of this lawsuit or determine the amount of any potential losses, if

any, and SNC-Lavalin may, in the future, be subject to further class actions or other litigation.




80

17 FOURTH QUARTER RESULTSFor the fourth quarter of 2011, net income attributable to SNC-Lavalin shareholders was $76.0 million ($0.50 per share on a diluted basis), compared to $158.7 million ($1.04 per share on a diluted basis) for the comparable quarter in 2010, or $132.6 million ($0.87 per share

on a diluted basis) excluding the 2010 net gain after taxes of $26.1 million from the disposal of Trencap and Valener. The decrease, excluding

the 2010 gain mentioned above, mainly refl ected an operating loss in Infrastructure & Environment and in Hydrocarbons & Chemicals,

mainly due to unfavourable cost reforecasts on certain projects, a $22.4 million loss from a revised position of the Company’s net fi nancial

position that related to its Libyan infrastructure projects and period expenses of $35 million in Hydrocarbons & Chemicals, partially offset

by higher operating income, mainly from Mining & Metallurgy and O&M. The $35 million of period expenses related to payments made,

under what are presumed to be agency agreements that were charged and documented to construction projects to which they did not relate

(refer to section 1.1 “Recent Developments – Independent Review”). Because these payments were documented to construction projects

to which they did not relate, and that there is no direct and conclusive evidence on the use and purpose of these payments or the nature of

the services rendered in conection therewith, it was determined that they would need to be recorded as period expenses (i.e., not generating

any revenues) for accounting purposes.

Revenues for the fourth quarter of 2011 totalled $2.1 billion, compared to $1.8 billion for the fourth quarter of 2010, as Services and

Packages revenues increased by 32.2% and 14.8% respectively.

The Company’s backlog increased to $10.1 billion as at December 31, 2011, compared to $9.4 billion as at the end of the third quarter

of 2011, mainly refl ecting an increase in Packages, primarily in Hydrocarbons & Chemicals and Mining & Metallurgy, partially offset by

a decrease in Infrastructure & Environment.

At the end of December 2011, the Company’s cash and cash equivalents were $1.2 billion, compared to $1.0 billion at the end of

September 2011, mainly refl ecting cash generated from operating activities, primarily from the net change in non-cash working capital items,

and from the net cash generated from fi nancing activities, partially offset by the net cash used for investing activities.

18 CONTROLS AND PROCEDURESThe Company’s chief executive offi cer (“CEO”) and chief fi nancial offi cer (“CFO”) are responsible for establishing and maintaining disclosure

controls and procedures as well as the internal control over fi nancial reporting, as those terms are defi ned in National Instrument 52-109 –

Certifi cation of Disclosure in Issuers’ Annual and Interim Filings (“NI 52-109”) of the Canadian securities regulatory authorities.

18.1 DISCLOSURE CONTROLS AND PROCEDURES

The Interim CEO and the CFO have carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures as at

December 31, 2011. In making this evaluation, the Interim CEO and the CFO considered, among other things:

> the fi ndings of the Independent Review summarized under section 1.1 “Recent Developments — Independent Review”;

> the material weaknesses in the Company’s internal control over fi nancial reporting that have been identifi ed (as more fully discussed

under section 18.2);

> the measures that the Company and its Board of Directors have identifi ed and, in certain instances, begun to implement to address

those material weaknesses and to strengthen the Company’s internal controls (as more fully described under section 18.3); and

> the results of the ongoing testing and evaluations carried out by the Company of the design and operating effectiveness of its

disclosure controls and procedures and internal control over fi nancial reporting throughout the periods covered by the Company’s

annual and interim fi lings.

Based on this evaluation, the Interim CEO and the CFO have concluded that the Company’s disclosure controls and procedures, as at December

31, 2011, were not effective to provide reasonable assurance that (i) material information relating to the Company is made known to the CEO

and CFO by others, particularly during the period in which the Company’s annual fi lings under securities legislation are being prepared; and

(ii) information required to be disclosed by the Company in its annual fi lings, interim fi lings or other reports fi led or submitted under securities

legislation is recorded, processed, summarized and reported within the time periods specifi ed in securities legislation.




81

18.2 INTERNAL CONTROL OVER FINANCIAL REPORTING

The Interim CEO and the CFO have carried out an evaluation of the effectiveness of the Company’s internal control over fi nancial reporting as

at December 31, 2011. As used herein, the term “material weakness” has the meaning prescribed in NI 52-109 and means a defi ciency, or a

combination of defi ciencies, in internal control over fi nancial reporting such that there is a reasonable possibility that a material misstatement

of a reporting issuer’s annual or interim fi nancial statements will not be prevented or detected on a timely basis.

In carrying out their evaluation, the Interim CEO and the CFO have identifi ed the following material weaknesses relating to the design and

operating effectiveness of the Company’s internal control over fi nancial reporting as at December 31, 2011 and the impact of such material

weaknesses on the Company’s fi nancial reporting and internal control over fi nancial reporting:

1. Management override of internal controls contained in the Company’s Commercial Agents/Representatives Policy and Procedure (the

“Agents Policy”). The Independent Review found that the Former CEO, acting at the request of the Former EVP Construction, overrode

controls with respect to the authorization of payments to commercial agents which did not comply with the Agents Policy and was a

breach of the Company’s Code of Ethics and Business Conduct (the “Code of Ethics”).

Disclosure controls and procedures and internal control over fi nancial reporting are subject to inherent limitations, including that management

has the ability to override internal controls. The unfettered ability of any member of management to override internal controls exposes

the Company to risk by providing an opportunity for such management member and potentially others to engage in and conceal illegal or

improper activity or the misuse or misappropriation of corporate assets and possible misrepresentations in fi nancial reporting.

2. Non-compliance with, and ineffective controls over compliance with, the Code of Ethics and the Agents Policy. The Independent Review

found that provisions of the Code of Ethics requiring the maintenance of accurate books and records were not complied with by the Former

CEO and the Former EVP Construction as a result of any one of the following fi ndings:

> the improper documentation of certain agency agreements in respect of projects to which they did not relate and the

concealment thereof;

> incorrect entries relating to payments under certain agency agreements in the books and records of the Company, and concealment

thereof ; and

> non-compliance with the Agents Policy.

The Interim CEO and the CFO have also concluded that the controls over compliance with the Code of Ethics and the Agents Policy were

ineffective.

Non-compliance with and/or ineffective controls regarding the hiring of, appropriate use of, verifi cation of the integrity of, contractual

relationship with, and/or supervision of the conduct of, commercial agents exposes the Company to the risk of improper or illegal activities

by its employees and agents, the misuse or misappropriation of corporate assets, and the concealment of such activities through falsifi cation

of documentation and corporate records, which in turn could impact the reliability of the Company’s fi nancial reporting.

In light of these material weaknesses, the Interim CEO and the CFO have concluded that the Company’s internal control over fi nancial

reporting, as at December 31, 2011, was not effective to provide reasonable assurance regarding the reliability of the Company’s fi nancial

reporting and the preparation of its fi nancial statements for external purposes in accordance with applicable accounting principles.

Despite the conclusions of the evaluations discussed above, the Interim CEO and the CFO believe, based on their knowledge (including, but

not limited to, their consideration of the scope of the Independent Review) and having exercised reasonable diligence, that (i) the Company’s

annual fi lings for the year ended December 31, 2011 do not contain any untrue statement of a material fact or omit to state a material fact

required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for

the period covered by the Company’s annual fi lings, and (ii) the annual fi nancial statements together with the other fi nancial information

included in the Company’s annual fi lings for the year ended December 31, 2011 fairly present in all material respects the fi nancial condition,

fi nancial performance and cash fl ows of the Company as of the date of and for the periods presented in such annual fi lings.

18.3 REMEDIAL MEASURES

At the recommendation of the Audit Committee, the Board of Directors has adopted the recommendations for remedial measures contained

in the Independent Review Summary. These recommendations are directed at reinforcing standards of conduct, strengthening and improving

internal controls and processes, and reviewing the compliance environment. In addition, the Company’s management has identifi ed and,

in certain instances, began to implement a number of measures to address the material weaknesses identifi ed above and to continue to

strengthen the Company’s fi nancial controls and procedures. The Board of Directors has directed management to develop a plan and

timetable for the implementation of all of these measures and will monitor their implementation. A summary of these measures, as well

as previously announced personnel actions, is set forth below.




82

REMEDIAL MEASURES TO ADDRESS MATERIAL WEAKNESSES> Adoption of a clear corporate policy providing procedures to be followed in cases of acceptable management departures from the Company’s

policies or procedures and anytime management requests or directs others to disregard the Company’s policies and procedures;

> The imposition of a clear duty to report violations or proposed violations of Company policies or procedures, including the Code of Ethics;

> The Company has recommended, and the Board of Directors has approved, various immediate changes to the Agents Policy, including:

> creation of an Agent Review Committee to review and approve the entering into of any agency agreement meeting certain criteria;

> annual review of the Agents Policy by the Governance Committee of the Board of Directors;

> annual confi rmation of compliance with the Agents Policy by the Executive Vice-President responsible for this policy to be presented

to the Audit Committee of the Board of Directors;

> enhanced due diligence procedures in connection with all potential agency agreements, including completion of a “red fl ags” warning

checklist and integrity certifi cation by senior management following completion of due diligence; and

> formal training of the Company’s commercial agents on the Code of Ethics.

The Board of Directors, the Audit Committee and management of the Company will continue to consider, develop and implement additional

remedial measures as appropriate to address the material weaknesses identifi ed above and the fi ndings of the Independent Review, including

any additional measures that the Board of Directors considers to be appropriate to address the conduct of individuals involved in the events

in question.

MEASURES TO CONTINUE TO STRENGTHEN FINANCIAL CONTROLS AND PROCEDURES > A continued commitment to and prioritization of ethical business conduct including through :

> a communication plan emphasizing compliance with the Code of Ethics as a core value in all aspects of the Company’s business

and enhanced training programs around the Code of Ethics throughout the organization;

> the ongoing review and update of the Code of Ethics initiated in 2011;

> the expansion of the scope of complaints and reporting under the Company’s Whistleblowing Policy to include all violations of the

Code of Ethics; and

> the specifi c monitoring of compliance with the Code of Ethics and administration of the Whistleblowing Policy by the Ethics and

Compliance Committee, in addition to existing oversight of the Audit Committee and Human Resources Committee.

> Ongoing reinforcement of certain fi nancial controls and procedures, including through:

> the engagement of an independent expert to provide advice on the structure of the organization, guidelines and controls, and

communication and training;

> formally document the existing practice of the internal auditors reporting directly to the Audit Committee and continue to consider

and revise the mandate of the internal audit function of the Company to the Audit Committee;

> further reinforcing fi nancial control reporting lines, including a primary reporting line of business unit controllers to the corporate

fi nance group;

> reinforcement of procedures and approvals regarding levels of authority with clear reporting obligations on any deviations or

proposed deviations therefrom; and

> moving forward with the integration of the Company’s technology platforms to further facilitate the production of accurate fi nancial

information results, as well as monitoring thereof in a timely and cost-effective manner.

OTHER MATTERSThe Former EVP Construction, who was found by the Independent Review to have breached the Agents Policy and the Code of Ethics, and

the Former Controller Construction, whose conduct also came into question by the Independent Review, have both ceased to be employed

by the Company as of February 9, 2012. Further, the Former CEO, who was found by the Independent Review to have breached the Agents

Policy and the Code of Ethics, has stepped down from his position as CEO and as a director of the Company and will retire from the Company.

18.4 CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have been no changes in the Company’s internal control over fi nancial reporting that occurred during the most recent interim period

and year ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control

over fi nancial reporting. However, the above mentioned proposed changes in the Company’s internal control over fi nancial reporting as a

result of the implementation of the remedial measures described above are reasonably likely to materially affect the Company’s internal

control over fi nancial reporting as it relates to the material weaknesses described above. The Company intends to continue to make ongoing

assessments of its internal controls and procedures periodically and as a result of the recommendations of the Independent Review.




83

19 QUARTERLY INFORMATIONYEAR ENDED DECEMBER 31 (IN MILLIONS OF CANADIAN DOLLARS,EXCEPT PER SHARE AMOUNTS) 2011 2010

FIRST QUARTER

SECOND QUARTER

THIRD QUARTER


FIRST QUARTER

SECOND QUARTER

THIRD QUARTER


Revenues by activity:

Services 480.2 564.4 598.0 795.2 2,437.8 457.2 501.6 493.7 601.3 2,053.8

Packages 634.9 693.9 758.2 784.5 2,871.5 384.1 463.2 606.7 683.4 2,137.4

O&M 426.7 281.7 308.3 382.5 1,399.2 383.1 255.7 308.0 383.6 1,330.4

ICI 101.8 128.7 115.0 155.9 501.4 86.9 127.8 100.8 156.8 472.3

1,643.6 1,668.7 1,779.5 2,118.1 7,209.9 1,311.3 1,348.3 1,509.2 1,825.1 5,993.9

Gross margin 276.2 316.6 340.4 318.9 1,252.1 263.5 318.1 318.0 401.4 1,301.0

Selling, general and

administrative expenses 153.0 166.1 150.7 184.9 654.7 130.3 146.0 132.2 173.2 581.7

Net fi nancial expenses:

From ICI 23.2 20.1 25.6 30.8 99.7 18.1 21.7 20.8 24.5 85.1

From other activities 4.0 6.3 5.4 (0.2) 15.5 7.5 9.1 4.4 5.0 26.0

27.2 26.4 31.0 30.6 115.2 25.6 30.8 25.2 29.5 111.1

Income before income tax expense 96.0 124.1 158.7 103.4 482.2 107.6 141.3 160.6 198.7 608.2

Income tax expense:

From ICI 2.2 1.5 3.3 5.6 12.6 1.4 5.4 2.9 4.7 14.4

From other activities 15.0 17.7 27.9 21.7 82.3 19.5 22.1 32.4 32.4 106.4

17.2 19.2 31.2 27.3 94.9 20.9 27.5 35.3 37.1 120.8

Net income 78.8 104.9 127.5 76.1 387.3 86.7 113.8 125.3 161.6 487.4

Net income attributable to:

SNC-Lavalin shareholders 76.1 102.2 124.5 76.0 378.8 84.1 110.1 123.8 158.7 476.7

Non-controlling interests 2.7 2.7 3.0 0.1 8.5 2.6 3.7 1.5 2.9 10.7

Net income 78.8 104.9 127.5 76.1 387.3 86.7 113.8 125.3 161.6 487.4

Basic earnings per share ($) 0.50 0.68 0.83 0.50 2.51 0.56 0.73 0.82 1.05 3.16

Diluted earnings per share ($) 0.50 0.67 0.82 0.50 2.49 0.55 0.72 0.81 1.04 3.13

Dividend declared per share ($) 0.21 0.21 0.21 0.22 0.85 0.17 0.17 0.17 0.21 0.72

Depreciation of property and

equipment and amortization of other

non-current assets:

From ICI 19.7 21.2 20.9 31.3 93.1 18.3 21.7 20.8 26.1 86.9


29.7 31.8 32.3 44.7 138.5 28.5 31.4 30.3 36.3 126.5

Net income attributable to SNC-Lavalin

shareholders from ICI:

From Highway 407 13.8 32.3 13.9 17.2 77.2 9.2 22.7 – 18.4 50.3

From other ICI 10.6 9.4 11.7 22.3 54.0 10.3 21.7 16.4 36.2 84.6

Net income attributable to SNC-Lavalin

shareholders excluding ICI 51.7 60.5 98.9 36.5 247.6 64.6 65.7 107.4 104.1 341.8

Net income attributable to

SNC-Lavalin shareholders 76.1 102.2 124.5 76.0 378.8 84.1 110.1 123.8 158.7 476.7

Revenue backlog (at end of quarter)

Services 1,396.0 1,679.9 2,196.6 2,226.1 1,412.7 1,485.4 1,429.1 1,410.7

Packages 5,558.1 5,331.2 4,852.3 5,482.8 4,288.6 4,134.9 5,520.7 5,572.4

O&M 2,429.2 2,343.5 2,393.2 2,379.1 2,914.5 2,808.8 2,621.3 2,732.8

9,383.3 9,354.6 9,442.1 10,088.0 8,615.8 8,429.1 9,571.1 9,715.9

Note: The quarterly information presented in the table above has been adjusted compared to the previously reported quarterly results to refl ect $20 million paid in

2010 and $2.5 million paid in 2011, under what is presumed to be an agency agreement. Payments of $35 million made in the fourth quarter of 2011, under what

are presumed to be agency agreements, did not require any adjustments to the previously reported quarters as they were all attributable to the fourth quarter of

2011 and, therefore, not affecting prior periods (refer to section 1.1 “Recent Developments – Independent Review” and section 14.1 “First-Time Adoption of IFRS”).



84

IAN A. BOURNEVICE-CHAIRMAN ANDINTERIM CHIEF EXECUTIVE OFFICER

MONTREAL, CANADAMARCH 25, 2012

GILLES LARAMÉEEXECUTIVE VICE-PRESIDENT AND CHIEF FINANCIAL OFFICER

The accompanying audited consolidated fi nancial statements (“fi nancial statements”) of SNC-Lavalin Group Inc. and all the information in

this fi nancial report are the responsibility of management and are approved by the Board of Directors.

The fi nancial statements have been prepared by management in accordance with International Financial Reporting Standards. When alternative

accounting methods exist, management has chosen those it considers most appropriate in the circumstances.

The signifi cant accounting policies used are described in Note 2 to the fi nancial statements. Certain amounts in the fi nancial statements are

based on estimates and judgments. Management has determined such amounts on a reasonable basis in order to ensure that the fi nancial

statements are presented fairly, in all material respects. Management has prepared the fi nancial information presented elsewhere in the

fi nancial report and has ensured that it is consistent with that in the fi nancial statements.

The Company’s Chief Executive Offi cer and Chief Financial Offi cer are responsible for having established and maintaining disclosure

controls and procedures and internal controls over fi nancial reporting. Two material weaknesses relating to the design and operating

effectiveness of the Company’s internal control over fi nancial reporting were identifi ed and it was determined that the Company’s disclosure

controls and procedures and internal control over fi nancial reporting were not effective, in both cases, as at December 31, 2011. Management

has identifi ed and, in certain instances, begun to implement a number of measures to address the material weaknesses and continues to

strengthen the Company’s internal control over fi nancial reporting, as more fully described in the “Controls and Procedures” section of the

2011 Management’s Discussion and Analysis. However, such measures may not be effective and the Company could face additional risks

and/or unknown losses.

The Board of Directors is responsible for ensuring that management fulfi lls its responsibilities for fi nancial reporting and is ultimately

responsible for reviewing and approving the fi nancial statements. The Board of Directors carries out this responsibility principally through

its Audit Committee.

The Audit Committee is appointed by the Board of Directors, and all of its members are independent directors. The Audit Committee meets

periodically with management, as well as with the internal and independent auditors, to discuss disclosure controls and procedures, internal

controls over fi nancial reporting, management information systems, accounting policies, auditing and fi nancial reporting issues, to satisfy

itself that each party is properly discharging its responsibilities, and to review the fi nancial statements, the Management’s Discussion and

Analysis and the independent auditor’s report. The Audit Committee reports its fi ndings to the Board of Directors for consideration when

approving the fi nancial statements for issuance to the shareholders. The Audit Committee also considers, for review by the Board of Directors

and approval by the shareholders, the engagement or reappointment of the independent auditor, and reviews and approves the terms of its

engagement as well as the fee, scope and timing of its services.

The fi nancial statements have been audited, on behalf of the shareholders, by Deloitte & Touche LLP, the independent auditor, in accordance

with Canadian generally accepted auditing standards. The independent auditor has full and free access to the Audit Committee and may

meet with or without the presence of management.

Management’s Responsibility for Financial Reporting



85

To the shareholders of SNC-Lavalin Group Inc.

We have audited the accompanying consolidated fi nancial statements of SNC-Lavalin Group Inc., which comprise the consolidated statements

of fi nancial position as at December 31, 2011, December 31, 2010 and January 1, 2010, and the consolidated income statements, the

consolidated statements of comprehensive income, changes in equity and cash fl ows for the years ended December 31, 2011 and 2010, and

a summary of signifi cant accounting policies and other explanatory information.

MANAGEMENT’S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS

Management is responsible for the preparation and fair presentation of these consolidated fi nancial statements in accordance with International

Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated

fi nancial statements that are free from material misstatement, whether due to fraud or error.

AUDITOR’S RESPONSIBILITY

Our responsibility is to express an opinion on these consolidated fi nancial statements based on our audits. We conducted our audits in accordance

with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and

perform the audit to obtain reasonable assurance about whether the consolidated fi nancial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated fi nancial statements.

The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated

fi nancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the

entity’s preparation and fair presentation of the consolidated fi nancial statements in order to design audit procedures that are appropriate

in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also

includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management,

as well as evaluating the overall presentation of the consolidated fi nancial statements.

We believe that the audit evidence we have obtained in our audits is suffi cient and appropriate to provide a basis for our audit opinion.

OPINION

In our opinion, the consolidated fi nancial statements present fairly, in all material respects, the fi nancial position of SNC-Lavalin Group Inc.

as at December 31, 2011, December 31, 2010 and January 1, 2010, and its fi nancial performance and its cash fl ows for the years ended

December 31, 2011 and 2010 in accordance with International Financial Reporting Standards.

CHARTERED ACCOUNTANTS

MONTREAL, CANADA MARCH 25, 2012

(1) Chartered accountant auditor permit No. 18190

Independent Auditor’s Report



86

Consolidated Financial StatementsSNC-Lavalin Group Inc.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(IN THOUSANDS OF CANADIAN DOLLARS) NOTEDECEMBER 31

2011DECEMBER 31

2010JANUARY 1

2010

ASSETSCurrent assets

Cash and cash equivalents 7 $ 1,231,049 $ 1,235,085 $ 1,191,398

Restricted cash 7 39,354 39,369 31,377

Trade receivables 8 1,155,544 1,273,509 1,042,421

Contracts in progress 557,220 608,135 479,637

Other current fi nancial assets 9 396,552 290,254 279,805

Other current assets 10 166,563 120,128 132,941

Total current assets 3,546,282 3,566,480 3,157,579

Property and equipment:

From ICI 5, 11 2,637,735 2,072,814 1,725,206

From other activities 11 159,883 115,189 111,672

ICI accounted for by the equity or cost methods 5 643,487 626,948 575,863

Goodwill 12 639,471 542,028 520,862

Deferred income tax asset 26 161,364 158,419 139,265

Non-current fi nancial assets 13 412,258 313,295 285,728

Other non-current assets 14 153,521 125,607 73,974

Total assets $ 8,354,001 $ 7,520,780 $ 6,590,149

LIABILITIES AND EQUITYCurrent liabilities

Trade payables $ 1,520,395 $ 1,274,658 $ 1,294,752

Downpayments on contracts 316,714 422,930 397,329

Deferred revenues 907,118 728,187 510,189

Other current fi nancial liabilities 15 291,031 324,949 240,083

Other current liabilities 16 151,689 97,106 121,757

Short-term debt and current portion of long-term debt:

Recourse 17 – – 104,874

Non-recourse from ICI 17 327,381 38,762 51,596

Total current liabilities 3,514,328 2,886,592 2,720,580

Long-term debt:

Recourse 17 348,369 348,204 348,048

Non-recourse from ICI 17 1,561,377 1,529,024 1,258,402

Other non-current fi nancial liabilities 18 130,744 76,397 81,697

Provisions 19 224,834 177,087 131,411

Other non-current liabilities 20 486,217 432,183 378,475

Deferred income tax liability 26 201,416 151,861 71,843

Total liabilities 6,467,285 5,601,348 4,990,456

EquityShare capital 21 455,682 424,935 397,735

Retained earnings 1,543,199 1,459,323 1,124,508

Other components of equity 22 (115,813) (67,480) (4,035)

Equity attributable to SNC-Lavalin shareholders 1,883,068 1,816,778 1,518,208

Non-controlling interests 3,648 102,654 81,485

Total equity 1,886,716 1,919,432 1,599,693

Total liabilities and equity $ 8,354,001 $ 7,520,780 $ 6,590,149

See accompanying notes to consolidated fi nancial statements.

IAN A. BOURNEDIRECTOR

DAVID GOLDMANDIRECTOR

Approved, on behalf of the Board of Directors, by:



87

Consolidated Financial Statements

SNC-Lavalin Group Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

YEAR ENDED DECEMBER 31(IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT NUMBER OF COMMON SHARES) 2011

EQUITY ATTRIBUTABLE TO SNC-LAVALIN SHAREHOLDERS

NON-CONTROLLING

INTERESTS TOTAL EQUITY

SHARE CAPITAL

RETAINED EARNINGS

OTHER COMPONENTS

OF EQUITY (NOTE 22) TOTAL

COMMON SHARES (IN THOUSANDS) AMOUNT

Balance at beginning of year 151,034 $ 424,935 $ 1,459,323 $ (67,480) $ 1,816,778 $ 102,654 $ 1,919,432Net income – – 378,800 – 378,800 8,542 387,342Other comprehensive income (loss) – – (11,747) (45,565) (57,312) 702 (56,610)

Total comprehensive income – – 367,053 (45,565) 321,488 9,244 330,732Dividends declared (Note 21F) – – (126,750) – (126,750) – (126,750)Dividends declared by subsidiaries

to non-controlling interests – – – – – (827) (827)Stock option compensation (Note 21B) – – 15,411 – 15,411 – 15,411Shares issued under stock option

plans (Note 21B) 820 33,219 (6,283) – 26,936 – 26,936Shares redeemed and cancelled (Note 21D) (820) (2,472) (41,799) – (44,271) – (44,271)Acquisition of non-controlling interests of

AltaLink (Note 5A) – – (124,353) (2,768) (127,121) (110,813) (237,934)Acquisition of other

non-controlling interests – – 597 – 597 (1,226) (629)Capital contributions by

non-controlling interests – – – – – 4,616 4,616

Balance at end of year 151,034 $ 455,682 $ 1,543,199 $ (115,813) $ 1,883,068 $ 3,648 $ 1,886,716

YEAR ENDED DECEMBER 31(IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT NUMBER OF COMMON SHARES) 2010

EQUITY ATTRIBUTABLE TO SNC-LAVALIN SHAREHOLDERS

NON-CONTROLLING

INTERESTS TOTAL EQUITY

SHARE CAPITAL

RETAINED EARNINGS

OTHER COMPONENTS

OF EQUITY(NOTE 22) TOTAL

COMMON SHARES (IN THOUSANDS) AMOUNT

Balance at beginning of year 151,033 $ 397,735 $ 1,124,508 $ (4,035) $ 1,518,208 $ 81,485 $ 1,599,693

Net income – – 476,666 – 476,666 10,723 487,389

Other comprehensive income (loss) – – (1,083) (63,445) (64,528) 770 (63,758)

Total comprehensive income – – 475,583 (63,445) 412,138 11,493 423,631

Dividends declared (Note 21F) – – (102,706) – (102,706) – (102,706)

Dividends declared by subsidiaries to

non-controlling interests – – – – – (1,796) (1,796)

Stock option compensation (Note 21B) – – 12,736 – 12,736 – 12,736

Shares issued under stock option

plans (Note 21B) 903 29,737 (5,392) – 24,345 – 24,345

Shares redeemed and cancelled (Note 21D) (902) (2,537) (45,406) – (47,943) – (47,943)

Capital contributions by

non-controlling interests – – – – – 11,472 11,472

Balance at end of year 151,034 $ 424,935 $ 1,459,323 $ (67,480) $ 1,816,778 $ 102,654 $ 1,919,432




88



CONSOLIDATED INCOME STATEMENTS

YEAR ENDED DECEMBER 31(IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT EARNINGS PER SHARE AND NUMBER OF SHARES) NOTE 2011 2010

Revenues by activity:Services $ 2,437,778 $ 2,053,787

Packages 2,871,530 2,137,421

O&M 1,399,197 1,330,459

ICI 501,366 472,274

7,209,871 5,993,941

Direct costs of activities 5,957,735 4,692,964

Gross margin 1,252,136 1,300,977

Selling, general and administrative expenses 24 654,691 581,699

Net fi nancial expenses 23 115,211 111,075

Income before income tax expense 482,234 608,203

Income tax expense 26 94,892 120,814

Net income $ 387,342 $ 487,389

Net income attributable to:SNC-Lavalin shareholders $ 378,800 $ 476,666

Non-controlling interests 8,542 10,723

Net income $ 387,342 $ 487,389

Earnings per share (in $)Basic $ 2.51 $ 3.16

Diluted $ 2.49 $ 3.13

Weighted average number of outstanding shares (in thousands) 21E

Basic 150,897 151,020

Diluted 151,940 152,277




89



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

YEAR ENDED DECEMBER 31(IN THOUSANDS OF CANADIAN DOLLARS) 2011

ATTRIBUTABLE TO SNC-LAVALIN SHAREHOLDERS

NON-CONTROLLING INTERESTS TOTAL

Net income $ 378,800 $ 8,542 $ 387,342

Other comprehensive income (loss):

Exchange differences on translating foreign operations (Note 22) (11,951) 39 (11,912)Available-for-sale fi nancial assets (Note 22) 212 – 212Cash fl ow hedges (Note 22) (11,859) 663 (11,196)Defi ned benefi t pension plans and other post-employment benefi ts (Note 22) (16,033) – (16,033)Share of other comprehensive loss of investments accounted for by the equity

method (Note 22) (42,863) – (42,863)Income tax benefi t relating to components of other comprehensive loss (Note 22) 25,182 – 25,182

Total other comprehensive income (loss) (57,312) 702 (56,610)

Total comprehensive income $ 321,488 $ 9,244 $ 330,732

YEAR ENDED DECEMBER 31 (IN THOUSANDS OF CANADIAN DOLLARS) 2010

ATTRIBUTABLE TO SNC-LAVALIN SHAREHOLDERS

NON-CONTROLLING INTERESTS TOTAL

Net income $ 476,666 $ 10,723 $ 487,389


Exchange differences on translating foreign operations (Note 22) (21,077) (116) (21,193)

Available-for-sale fi nancial assets (Note 22) (11,456) – (11,456)

Cash fl ow hedges (Note 22) (16,408) 886 (15,522)

Defi ned benefi t pension plans and other post-employment benefi ts (Note 22) (1,442) – (1,442)

Share of other comprehensive loss of investments accounted for by the equity

method (Note 22) (27,250) – (27,250)

Income tax benefi t relating to components of other comprehensive loss (Note 22) 13,105 – 13,105

Total other comprehensive income (loss) (64,528) 770 (63,758)

Total comprehensive income $ 412,138 $ 11,493 $ 423,631




90



CONSOLIDATED STATEMENTS OF CASH FLOWS

YEAR ENDED DECEMBER 31(IN THOUSANDS OF CANADIAN DOLLARS) NOTE 2011 2010

Operating activitiesNet income $ 387,342 $ 487,389

Adjustments to reconcile net income to cash fl ows from operating activities:

Depreciation of property and equipment and amortization of other non-current assets:

From ICI 93,099 86,879

From other activities 45,378 39,664

Income tax expense recognized in net income 26 94,892 120,814

Income taxes paid (14,145) (2,397)

Net fi nancial expenses recognized in net income 23 115,211 111,075

Interest paid:

From ICI (91,072) (78,287)

From other activities (21,507) (32,784)

Expense recognized in respect of stock options 21B 15,411 12,736

Expense recognized in respect of cash-settled share-based payment arrangements 21C 8,938 5,523

Income from ICI accounted for by the equity method (102,827) (76,897)

Net gain on disposals of ICI, before taxes 5B – (29,567)

Other (42,178) (6,491)

Dividends and distributions received from ICI accounted for by the equity method 89,372 51,904

577,914 689,561

Net change in non-cash working capital items 25 341,755 (189,480)

Net cash generated from operating activities 919,669 500,081

Investing activitiesAcquisition of property and equipment:

From ICI (545,781) (402,013)

From other activities (67,224) (46,032)

Payments for ICI 5D (101,138) (92,728)

Recovery from ICI 16,055 –

Acquisition of businesses 6 (140,399) (39,164)

Proceeds from disposals of ICI – 176,934

Increase in receivables under service concession arrangements (83,735) (48,999)

Recovery of receivables under service concession arrangements 68,255 15,698

Other (9,670) (39,589)

Net cash used for investing activities (863,637) (475,893)

Financing activitiesRepayment of debt:

Non-recourse from ICI (7,683) (142,263)

Recourse from other activities – (105,000)

Acquisition of a subsidiary’s debenture related to the AltaLink transaction 5A (50,000) –

Increase in non-recourse debt from ICI 374,792 400,646

Proceeds from exercise of stock options 26,936 24,345

Redemption of shares 21D (44,271) (47,943)

Dividends paid to SNC-Lavalin shareholders 21F (126,750) (102,706)

Acquisition of non-controlling interests of AltaLink (1) 5A (228,816) –

Other (976) 4,790

Net cash generated from (used for) fi nancing activities (56,768) 31,869

Decrease in exchange differences on translating cash and cash equivalents held in

foreign operations (3,300) (12,370)

Net increase (decrease) in cash and cash equivalents (4,036) 43,687

Cash and cash equivalents at beginning of year 1,235,085 1,191,398

Cash and cash equivalents at end of year $ 1,231,049 $ 1,235,085

Supplementary cash fl ow information 25

(1) The acquisition of non-controlling interests of AltaLink is classifi ed as cash fl ows used for fi nancing activities in accordance with IFRS as there is specifi c

applicable guidance when acquiring non-controlling interests and, as such, is not part of investing activities.




91

Notes to Consolidated Financial Statements

1 Description of Business 92

2 Summary of Signifi cant Accounting Policies 92

3 Critical Accounting Judgments and Key Sources of Estimation Uncertainty 103

4 Segment Disclosures 105

5 Infrastructure Concession Investments (“ICI”) 109

6 Acquisition of Businesses 118

7 Cash and Cash Equivalents and Restricted Cash 120

8 Trade Receivables 120

9 Other Current Financial Assets 121

10 Other Current Assets 121

11 Property and Equipment 121

12 Goodwill 123

13 Non-Current Financial Assets 123

14 Other Non-Current Assets 124

15 Other Current Financial Liabilities 124

16 Other Current Liabilities 124

17 Short-Term Debt and Long-Term Debt 125

18 Other Non-Current Financial Liabilities 126

19 Provisions 126

20 Other Non-Current Liabilities 127

21 Share Capital 127

22 Other Components of Equity 131

23 Net Financial Expenses 133

24 Selling, General and Administrative Expenses 133

25 Supplementary Cash Flow Information 134

26 Income Taxes 134

27 Financial Instruments 137

28 Capital Management 142

29 Pension Plans and Other Post-Employment Benefi ts 143

30 Contingent Liabilities 146

31 Operating Lease Arrangements 146

32 Remuneration 146

33 Related Party Transactions 147

34 Subsidiaries, Joint Ventures and Associates 148

35 First-Time Adoption of IFRS 150

36 Subsequent Events 169

TABLE OF CONTENTS NOTE PAGE



92

Notes to Consolidated Financial Statements1 Description of BusinessSNC-Lavalin Group Inc. is incorporated under the Canada Business Corporations Act and has its registered offi ce at 455 René-Lévesque

Boulevard West, Montreal, Quebec, Canada H2Z 1Z3. SNC-Lavalin Group Inc. is a public company listed on the Toronto Stock Exchange in

Canada. Reference to the “Company” or to “SNC-Lavalin” means, as the context may require, SNC-Lavalin Group Inc. and all or some of its

subsidiaries or joint ventures, or SNC-Lavalin Group Inc. or one or more of its subsidiaries or joint ventures.

The Company provides engineering and construction, and operations and maintenance expertise through its network of offi ces located across

Canada and in over 40 other countries, and is currently working on projects around the world. SNC-Lavalin also makes select investments

in infrastructure concessions that are complementary to its other activities.

The Company reports its revenues under four categories of activity, which are as follows:

> Services: includes contracts wherein SNC-Lavalin provides engineering services, feasibility studies, planning, detailed design, contractor

evaluation and selection, project and construction management, and commissioning.

Services revenues are derived primarily from cost-plus reimbursable contracts.

> Packages: includes contracts wherein SNC-Lavalin is responsible not only for providing one or more of the Services activities listed above,

but also undertakes the responsibility for providing materials and equipment, and usually also includes construction activities.

Packages revenues are derived primarily from fi xed-price contracts.

> Operations and Maintenance (“O&M”): consists of providing operations, maintenance and logistics solutions for buildings, power plants,

water supply and treatment systems, desalination plants, postal services, broadcasting facilities, highways, bridges, light rail transit

systems, airports, ships and camps for construction sites and the military.

O&M revenues are derived primarily from cost reimbursable with fi xed-fee contracts, and from fi xed-price contracts.

> Infrastructure Concession Investments (“ICI”): regroups SNC-Lavalin’s investments in infrastructure concessions for public services,

such as airports, bridges, cultural and public service buildings, power, mass transit systems, roads and water.

In these audited consolidated fi nancial statements (“fi nancial statements”), activities from Services, Packages, and O&M are collectively

referred to as “from other activities” or “excluding ICI” to distinguish them from ICI.

2 Summary of Signifi cant Accounting Policies

A) BASIS OF PREPARATION

The Company’s fi nancial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued

and effective, or issued and early adopted, for the year ended December 31, 2011, and are presented in Canadian dollars. All values are

rounded to the nearest thousand dollars, except where otherwise indicated.

These are the Company’s fi rst annual consolidated fi nancial statements prepared in accordance with IFRS and IFRS 1, First-Time Adoption of International Financial Reporting Standards, (“IFRS 1”) is applied.

The preparation of annual consolidated fi nancial statements in accordance with IFRS resulted in changes to the accounting policies as

compared to the most recent annual fi nancial statements prepared under Canadian generally accepted accounting principles (“GAAP”).

An explanation of how the transition to IFRS has affected the reported fi nancial position, fi nancial performance and cash fl ows of the

Company is provided in Note 35.

The IFRS accounting policies set out below were consistently applied to all periods presented. They were also applied in preparing the IFRS

statement of fi nancial position as at January 1, 2010 (“Date of Transition”) for the purpose of transition to IFRS, as required by IFRS 1.

The preparation of fi nancial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires

management to exercise its judgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of

judgment or complexity, or areas where assumptions and estimates are signifi cant are disclosed in Note 3.

(ALL TABULAR FIGURES IN THOUSANDS OF CANADIAN DOLLARS, UNLESS OTHERWISE INDICATED)



93


The Company’s fi nancial statements have been prepared on the historical cost basis, with the exception of i) certain fi nancial instruments,

derivative fi nancial instruments and liabilities for cash-settled share-based payment arrangements, which are measured at fair value;

and ii) defi ned benefi t liability, which is measured as the net total of the present value of the defi ned benefi t obligation minus the fair value of

plan assets. Historical cost generally represents the fair value of consideration given in exchange for assets upon initial recognition.

The Company’s fi nancial statements were authorized for issue by the Board of Directors on March 25, 2012.

B) STANDARDS AND INTERPRETATIONS ISSUED TO BE ADOPTED AT A LATER DATE

The following standards and amendments to existing standards have been issued and are applicable to the Company for its annual periods

beginning on or after January 1, 2013, with earlier application permitted:

> IFRS 10, Consolidated Financial Statements, (“IFRS 10”) replaces IAS 27, Consolidated and Separate Financial Statements, and SIC-12,

Consolidation — Special Purpose Entities, and establishes principles for identifying when an entity controls other entities.

> IFRS 11, Joint Arrangements, (“IFRS 11”) supersedes IAS 31, Interests in Joint Ventures, and SIC-13, Jointly Controlled Entities — Non-monetary Contributions by Venturers, and requires a single method to account for interests in jointly controlled entities.

> IFRS 12, Disclosure of Interests in Other Entities, (“IFRS 12”) establishes comprehensive disclosure requirements for all forms of interests

in other entities, including joint arrangements, associates, and special purpose vehicles.

> IFRS 13, Fair Value Measurement, provides a single source of fair value measurement and disclosure requirements in IFRS.

> Amended and re-titled IAS 27, Separate Financial Statements, and IAS 28, Investments in Associates and Joint Ventures, as a consequence

of the new IFRS 10, IFRS 11 and IFRS 12.

> Amendments to IAS 1, Presentation of Financial Statements, to require entities to group items within other comprehensive income that

may be reclassifi ed to net income.

> Amendments to IAS 19, Employee Benefi ts, to eliminate the corridor method that defers the recognition of gains and losses, to streamline

the presentation of changes in assets and liabilities arising from defi ned benefi t plans and to enhance the disclosure requirements for

defi ned benefi t plans.

The following standard has been issued and is applicable to the Company for its annual periods beginning on or after January 1, 2015,

with earlier application permitted:

> IFRS 9, Financial Instruments, covers the classifi cation and measurement of fi nancial assets and fi nancial liabilities.

The Company is currently evaluating the impact of adopting these standards and amendments on its fi nancial statements.

2 Summary of Signifi cant Accounting Policies (continued)



94


C) BASIS OF CONSOLIDATION

The fi nancial statements consist of the full consolidation of the accounts of SNC-Lavalin Group Inc. and its subsidiaries.

In accordance with IFRS, SNC-Lavalin’s investments are accounted for as follows:

TYPE OF INVESTMENT TYPE OF INFLUENCE ACCOUNTING METHOD

Subsidiary Control Full consolidation method

Jointly controlled entity Joint control Equity method

Jointly controlled operation Joint control SNC-Lavalin’s proportionate interest

Associate Signifi cant infl uence Equity method

Available-for-sale fi nancial asset Non-signifi cant infl uence Cost method

A subsidiary that is not wholly-owned by SNC-Lavalin results in non-controlling interests that are presented separately on the consolidated

statement of fi nancial position, while the portions of net income and of comprehensive income attributable to such non-controlling interests

are also shown separately on the consolidated income statement and on the consolidated statement of comprehensive income, respectively.

When necessary, adjustments are made to the fi nancial statements of subsidiaries, joint ventures and associates to bring their accounting

policies in line with those used by the Company.

BUSINESS ACQUISITIONSAcquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured

at the aggregate of the fair values (at the date of acquisition) of assets given, liabilities incurred or assumed, and equity instruments issued by

the Company, if any, in exchange for control of the acquiree. Provisional fair values allocated at a reporting date are fi nalized within twelve

months of the acquisition date.

Business acquisition costs are expensed in the periods in which these costs are incurred and the services are received.

The results of businesses acquired are included in the consolidated fi nancial statements from the date on which control commences.

D) FOREIGN CURRENCY TRANSLATION

FUNCTIONAL AND PRESENTATION CURRENCYThe individual fi nancial statements of each entity within the Company are prepared in the currency of the primary economic environment

in which the entity operates (its functional currency). For the purpose of the consolidated fi nancial statements, the results and fi nancial

position of each entity within the Company are expressed in Canadian dollars (“CAD”), which is the functional currency of the Company and

the presentation currency for its consolidated fi nancial statements.

FOREIGN CURRENCY TRANSACTIONS AND BALANCESFor the purpose of preparing fi nancial statements, Canadian and foreign operations apply the following procedure on transactions and balances

in currencies other than their functional currency: 1) monetary items are translated in their functional currency using the exchange rate in

effect at the period end rate; 2) non-monetary items are translated in their functional currency using the historical exchange rate if they are

measured at cost, or using the exchange rate at the measurement date if they are measured at fair value; and 3) revenues and expenses

are translated in their functional currency using the average exchange rate of the period. Any resulting gains or losses are recognized in net

income and, if hedged, offsetting losses or gains from the hedging items are also recognized in net income.

As a result of applying the procedure described above, Canadian and foreign operations obtain fi nancial statements presented in their

functional currency.




95


TRANSLATION OF FINANCIAL STATEMENTS OF FOREIGN OPERATIONSFor the purpose of presenting consolidated fi nancial statements in Canadian dollars, the assets and liabilities of the Company’s foreign

operations that have a functional currency other than Canadian dollars are expressed in Canadian dollars using exchange rates prevailing

at the end of the reporting period, while revenues and expenses items are translated at the average exchange rate for the period. Exchange

differences arising on consolidation, if any, are recognized initially in other comprehensive income and reclassifi ed from equity to net income

on disposal or partial disposal, or in the case of impairment of the net investment.

Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation

and translated at the closing rate.

E) REVENUE RECOGNITION

REVENUES FROM SERVICES, PACKAGES, AND OPERATIONS AND MAINTENANCE ACTIVITIESRevenues from Services, Packages, and Operations and Maintenance activities are recognized based on the nature of the contract, which

are mainly as follows:

> Services and Packages: Cost-plus reimbursable contract revenues are recognized as costs are incurred, and include applicable fees

earned as services are provided. Fixed-price contract revenues are recorded on the stage of completion basis over the duration of

the contract, which consists of recognizing revenue on a given contract proportionately with its stage of completion at any given time.

The stage of completion is determined by dividing the cumulative costs incurred as at the period end date by the sum of incurred costs

and anticipated costs for completing a contract.

> Operations and Maintenance: The fi xed-fee revenue portion from cost reimbursable with fi xed-fee contracts is recognized on a straight-line

basis over the term of the contract, while the revenues from the cost-reimbursable portion are recognized as costs are incurred. Revenues

on fi xed-price contracts are recognized based on the stage of completion of the contract activity which involves taking the cumulative

costs incurred as at the period end date and dividing them by the sum of incurred costs and anticipated costs for completing a contract.

This measure of progress is then applied to the related anticipated revenue, resulting in recognizing revenues proportionately with the

stage of completion at any given time.

For fi xed-price contracts in all of the above-mentioned activities, the cumulative effect of changes to anticipated costs and anticipated

revenues for completing a contract are recognized in the period in which the revisions are identifi ed. In the event that the total anticipated

costs exceed the total anticipated revenues on a contract, such loss is recognized in its entirety in the period it becomes known. SNC-Lavalin

has numerous contracts that are in various stages of completion. Estimates are required to determine the appropriate anticipated costs and

revenues. Anticipated revenues on contracts may include future revenues from claims and unapproved change orders, if such additional

revenues can be reliably estimated and it is considered probable that they will be recovered. Such additional revenues are limited to the

costs related to the claims or unapproved change orders. Revenues from performance incentives are recognized when specifi c indicators

have been met and collection is reasonably assured.

In all cases, the value of construction activities, material and equipment purchased by SNC-Lavalin, when acting as purchasing agent for

a client, is not recorded as revenue.




96


REVENUES FROM ICI

Revenues from ICI regroup the following:

ACCOUNTING METHODS FOR THE COMPANY’S INVESTMENTS IN ICI REVENUES INCLUDED IN THE COMPANY’S CONSOLIDATED INCOME STATEMENT

Full consolidation Revenues that are recognized and reported by the ICI

Equity method SNC-Lavalin’s share of net results of the ICI or dividends from ICI for which the carrying

amount is $nil

Cost method Dividends and distributions from the ICI

MULTIPLE REVENUE CATEGORY CONTRACTUAL ARRANGEMENTS

SNC-Lavalin may enter into contractual arrangements with a client to deliver activities on one project which span more than one of the

following categories: Services or Packages, and/or Operations and Maintenance, and/or ICI. When entering into such arrangements, the Company

allocates consideration received or receivable by reference to the relative fair values of the services delivered, when the amounts are separately

identifi able. Accordingly, when such arrangements exist on the same project, the value of each revenue category is based on the fair value

of each related activity and recognized according to the respective revenue recognition methods described above.

F) FINANCIAL INSTRUMENTS

FINANCIAL ASSETS AND LIABILITIESFinancial instruments are contracts that give rise to a fi nancial asset or a fi nancial liability. Unless specifi cally covered by another accounting

policy, the measurement of fi nancial assets and fi nancial liabilities is based on their classifi cation, which is one of the following for SNC-Lavalin:

CATEGORY APPLICABLE TOINITIAL MEASUREMENT SUBSEQUENT MEASUREMENT

RECOGNITION OF INCOME/EXPENSE AND GAINS/LOSSES ON REMEASUREMENT, IF ANY

Held for trading Financial

assets and

fi nancial

liabilities

Transaction

price

Fair value All recognized in net income

Available-for-sale Financial assets Transaction

price including

transaction

costs

Fair value derived from published bid

price quotations for listed securities.

Where there is no active market, fair

value is determined using valuation

techniques. Where fair value cannot

be reliably measured, assets are

carried at cost.

Investment income, which includes

interest, dividends or distributions, is

recognized in net income. Gains/losses

from revaluation are recognized in

other comprehensive income until

assets are disposed of or impaired,

at which time the gains/losses are

recognized in net income.

Loans

and receivables

Financial assets Transaction

price including

transaction

costs

Amortized cost using the effective

interest method

All recognized in net income

Other

fi nancial liabilities

Financial

liabilities

Transaction

price including

transaction

costs

Amortized cost using the effective

interest method

All recognized in net income




97


DERIVATIVE FINANCIAL INSTRUMENTS USED FOR HEDGE ACCOUNTING

SNC-Lavalin enters into derivative fi nancial instruments, namely i) forward exchange contracts to hedge its exposure to fl uctuations in foreign

currency exchange rates on projects; and ii) interest-rate swaps to hedge the variability of interest rates relating to fi nancing arrangements.

SNC-Lavalin formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective

and strategy for undertaking these hedge transactions, and regularly assesses the effectiveness of these hedges. As such, all the derivative

fi nancial instruments described above qualify for hedge accounting and are accounted for as cash fl ow hedges and are measured at fair

value. The Company does not enter into derivative fi nancial instruments for speculative purposes.

Derivative fi nancial instruments designated as cash fl ow hedges are measured at fair value established by using valuation techniques based

on observable market data and taking into account the credit quality of the instruments. The effective portion of the change in fair value of the

derivative fi nancial instruments is recorded in other components of equity, while the ineffective portion, if any, of such change is recognized

in net income. Gains or losses from cash fl ow hedges included in other components of equity are reclassifi ed to net income as an offset to

the losses or gains recognized on the underlying hedged items.

IMPAIRMENT OF FINANCIAL ASSETS

Financial assets, other than those held for trading, are assessed for indicators of impairment at the end of each reporting period. Financial

assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial

recognition of the fi nancial asset, the estimated future cash fl ows of the investment have been affected.

For fi nancial assets carried at amortized cost, the amount of the impairment loss recognized is the difference between the asset’s

carrying amount and the present value of estimated future cash fl ows, discounted at the fi nancial asset’s original effective interest rate.

The carrying amount of the asset is reduced, with the amount of the loss recognized in net income.

When an available-for-sale fi nancial asset is considered to be impaired, the cumulative gains or losses previously recognized in other

comprehensive income are reclassifi ed to net income. Impairment losses previously recognized in net income are not reversed through net

income. Any increase in fair value subsequent to an impairment is recognized in other comprehensive income.

G) SERVICES CONCESSION ARRANGEMENTS UNDER IFRIC INTERPRETATION 12

IFRIC Interpretation 12, Service Concession Arrangements, (“IFRIC 12”) provides guidance on the accounting for certain qualifying public-private

partnership arrangements, whereby the grantor (i.e., usually a government):

> controls or regulates what services the operator (i.e. “the concessionaire”) must provide with the infrastructure, to whom it must provide

them, and at what price; and

> controls any signifi cant residual interest in the infrastructure at the end of the term of the arrangement.




98



Under such concession arrangements, the concessionaire accounts for the infrastructure asset by applying one of the following accounting

models depending on the allocation of the demand risk between the grantor and the concessionaire:

ACCOUNTING MODEL DEMAND RISK

Financial asset model The concessionaire does not bear demand risk through the usage of the infrastructure

(i.e., it has an unconditional right to receive cash irrespective of the usage of the

infrastructure, e.g. availability payments).

Intangible asset model The concessionaire bears demand risk (i.e., it has a right to charge fees for usage of

the infrastructure).

Bifurcated model The concessionaire shares demand risk with the grantor (i.e., the grantor pays the

concessionaire for its services partly by a fi nancial asset and partly by granting a right to

charge users of the infrastructure).

Revenues from services concession arrangements accounted for under IFRIC 12 are recognized as follows:

ACTIVITIES PROVIDED BY THE CONCESSIONAIRE REVENUE RECOGNITION CLASSIFICATION OF REVENUES IN THE INCOME STATEMENT

Construction or upgrade

(when a service concession arrangement

involves the construction or upgrade of

the public service infrastructure)

Revenues relating to construction or

upgrade services under a service concession

arrangement are recognized based on the

stage of completion of the work performed,

consistent with the Company’s accounting

policy on recognizing revenue applicable to

any construction contract (see Note 2E).

The Company classifi es these revenues as

“Packages” activities when SNC-Lavalin acts

as an EPC contractor. When SNC-Lavalin

does not act as an EPC contractor, revenues

are recognized by the concession as part of

“ICI” activities.

Operations and maintenance

(these activities may include maintenance of

the infrastructure and other activities provided

directly to the grantor or the users)

Operations and maintenance revenues

are recognized in the period in which the

activities are performed by the Company,

consistent with the Company’s accounting

policy on recognizing revenue applicable

to any operation and maintenance contract

(see Note 2E).

The Company classifi es these revenues

as “O&M” activities when SNC-Lavalin acts

as an O&M contractor. When SNC-Lavalin

does not act as an O&M contractor,

revenues are recognized by the concession

as part of “ICI” activities.

Rehabilitation

(when a service concession arrangement

requires the concessionaire to rehabilitate

the infrastructure such that the infrastructure

can deliver a specifi ed standard of service

at all times)

When rehabilitation activities are considered

revenue-generating activities, revenues

are recognized in the period in which the

services are provided, consistent with the

Company’s accounting policy on recognizing

revenue applicable to any other similar

contract (see Note 2E).

The Company classifi es these revenues as

“O&M” activities when SNC-Lavalin acts as a

rehabilitation contractor. When SNC-Lavalin

does not act as a rehabilitation contractor,

revenues are recognized by the concession

as part of “ICI” activities.

Financing

(when fi nancial asset model is applied)

Finance income generated on fi nancial

assets is recognized using the effective

interest method.

The Company classifi es this fi nance income

as “ICI” activities.

FINANCIAL ASSET MODELWhen the Company delivers more than one category of activity in a service concession arrangement, the consideration received or receivable

is allocated by reference to the relative fair values of the activity delivered, when the amounts are separately identifi able.

Revenues recognized by the Company under the fi nancial asset model are accumulated in “Receivables under service concession arrangements”,

a fi nancial asset that is recovered through payments received from the grantor.



99


INTANGIBLE ASSET MODELThe Company recognizes an intangible asset arising from a service concession arrangement when it has a right to charge for usage of the

concession infrastructure. The intangible asset received as consideration for providing construction or upgrade services in a service concession

arrangement is measured at fair value upon initial recognition. Borrowing costs, if any, are capitalized until the infrastructure is ready for its

intended use as part of the carrying amount of the intangible asset.

The intangible asset is then amortized over its expected useful life, which is the concession period in a service concession arrangement.

Fees collected by the concessionaire upon the usage of the infrastructure are classifi ed as revenues from “ICI” activities.

H) CASH EQUIVALENTS

Cash equivalents include short-term liquid investments that are readily convertible into a known amount of cash and which are subject to

an insignifi cant risk of changes in value. Cash equivalents are designated as held for trading and accounted for at fair value.

I) RESTRICTED CASH

Restricted cash includes cash and cash equivalents for which the use is restricted for specifi c purposes under certain arrangements. Restricted

cash that is not expected to become unrestricted within the next twelve months is included in “Non-current fi nancial assets” (Note 13).

Restricted cash is designated as held for trading and accounted for at fair value.

J) CONTRACTS IN PROGRESS

Contracts in progress represent the gross unbilled amount for a given project that is expected to be collected from customers for contract

work performed to date. It is measured at cost plus profi t recognized by the Company to date less progress billings.

If progress billings for a given project exceed costs incurred plus recognized profi ts, then the difference is presented as deferred revenues.

K) PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation is recorded at rates set to charge operations with the cost of depreciable assets

less their residual values (if any) over their estimated useful lives.

FROM ICI

Property and equipment from ICI that are accounted for by the full consolidation method are primarily:

ICI CATEGORY DEPRECIATION METHOD DEPRECIATION PERIOD

AltaLink Transmission assets and other Straight-line 30 to 40 years

Borrowing costs are capitalized if they are incurred in connection with the acquisition or production of a “qualifi ed asset” for which a considerable

period of time is required to prepare the asset for its intended use.

AltaLink borrows funds to provide fi nancing for its capital construction program. Borrowing costs eligible for capitalization are allocated to

capital expenditures. The capitalization rate is based on actual costs of debt used to fi nance the acquisition or construction of qualifying assets.

FROM OTHER ACTIVITIES

Property and equipment used for Services, Packages, and Operations and Maintenance activities are primarily:

CATEGORY DEPRECIATION METHOD DEPRECIATION PERIOD

Buildings Straight-line, by component 25 to 50 years

Computer equipment Straight-line 2 years

Offi ce furniture Diminishing balance 20%




100


L) IMPAIRMENT OF TANGIBLE AND INTANGIBLE ASSETS OTHER THAN GOODWILL

At the end of each reporting period, the Company reviews the carrying amounts of its tangible assets, which mainly include property and

equipment, and its intangible assets other than goodwill to determine whether there is any indication that those assets have suffered an

impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment

loss, if any. Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable

amount of the cash-generating unit (“CGU”) to which the asset belongs. Where a reasonable and consistent basis of allocation can be

identifi ed, corporate assets are also allocated to an individual CGU, or otherwise they are allocated to the smallest group of CGU for which

a reasonable and consistent allocation basis can be identifi ed.

Recoverable amount is the higher of: i) fair value less costs to sell; and ii) value in use. In assessing value in use, the estimated future cash

fl ows are discounted to their present value using a pre-tax discount rate that refl ects current market assessments of the time value of

money and risks.

If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU)

is reduced to its recoverable amount. An impairment loss is recognized immediately in net income.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised estimate of its

recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had

no impairment loss been recognized for the asset (or CGU) in prior periods. A reversal of an impairment loss is recognized immediately in

net income.

M) GOODWILL

Goodwill represents the excess of the purchase price of an acquired business over the fair value assigned to assets acquired and liabilities

assumed. Goodwill on acquisition of subsidiaries is separately disclosed and goodwill on acquisitions of associates and jointly controlled

entities is included within investments accounted for by the equity method.

Goodwill is not amortized and is assessed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to

each of the Company’s CGU or group of CGU expected to benefi t from the synergies of the combination. A CGU or group of CGU to which

goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the CGU or group of CGU

may be impaired. If the recoverable amount of the CGU or group of CGU is less than its carrying amount, the impairment loss is allocated

fi rst to reduce the carrying amount of any goodwill allocated to the CGU or group of CGU and then to the other assets of the CGU or group

of CGU pro-rata on the basis of the carrying amount of each asset in the CGU or group of CGU. An impairment loss recognized for goodwill

is not reversed in a subsequent period.

The Company has designated October 31 as the date for the annual impairment test. As at January 1, 2010, Date of Transition to IFRS,

as at October 31, 2011, date of the last impairment test, and as at October 31, 2010, goodwill was not considered to be impaired.

N) RESEARCH AND DEVELOPMENT COSTS

Research and development costs are expensed as incurred, except if the costs are related to the development and setup of new products,

processes and systems and satisfy generally recognized conditions for capitalization, including reasonable assurance that they will be

recovered. All capitalized development costs are amortized when commercial production begins, using the straight-line method over a period

not exceeding three years.

O) DOWNPAYMENTS ON CONTRACTS

Downpayments on contracts are contractually agreed advance payments made by clients that are deducted from future billings to such

clients as work is performed.




101


P) DEFERRED REVENUES

Deferred revenues consist of amounts billed to clients for a given project in excess of revenue recognized according to the corresponding

revenue recognition method and represents the opposite of contracts in progress. A given project may present an amount in either deferred

revenues or in contracts in progress, but not both.

Q) INCOME TAXES

Income tax expense recognized in net income comprises the sum of deferred income tax and current income tax not recognized in other

comprehensive income or directly in equity.

Current income tax assets and/or liabilities comprise amounts receivable from or payable to tax authorities relating to the current or prior

reporting periods, which are uncollected or unpaid at the reporting date. Current tax is payable on taxable income, which differs from net

income in the fi nancial statements. Calculation of current tax is based on tax rates and tax laws that have been enacted or substantively

enacted by the end of the reporting period.

Deferred income taxes are calculated using the liability method on temporary differences between the carrying amounts of assets and liabilities

and their tax bases. Deferred income tax on temporary differences associated with shares in subsidiaries, joint ventures and associates is not

provided if reversal of these temporary differences can be controlled by the Company and it is probable that reversal will not occur in the

foreseeable future.

Deferred income tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective

period of realization, provided they are enacted or substantively enacted by the end of the reporting period.

Deferred income tax assets are recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is

probable that future taxable income will be available against which they can be utilized. For management’s assessment of the probability of

future taxable income to utilize against deferred income tax assets, see Note 3 . Deferred income tax liabilities are always provided for in full.

Deferred income tax assets and liabilities are offset only when the Company has a right and intention to offset current tax assets and

liabilities from the same taxation authority.

Changes in deferred income tax assets or liabilities are recognized as a component of income tax expense (benefi t) in net income, except where

they relate to items that are recognized in other comprehensive income or directly in equity, in which case the related deferred income tax

is also recognized in other comprehensive income or equity, respectively.

R) DEFINED BENEFIT PENSION PLANS AND OTHER POST-EMPLOYMENT BENEFITS

Defi ned benefi t pension plans and other post-employment benefi ts obligations are included in “Provisions” in the consolidated statement

of fi nancial position and have been determined using the projected unit credit method, which sees each period of service as giving rise to an

additional unit of benefi t entitlement to the eligible employees and measures each unit separately to build up the fi nal obligation. In valuing

the defi ned benefi t cost as well as other post-employment benefi ts, assumptions are based on management’s best estimates, except for

the discount rate where the Company uses the market interest rate at the measurement date based on high-quality debt instruments with

cash fl ows that match the timing and amount of expected benefi t payments.

Current service costs, vested past service costs and effects of any curtailment or settlements are recognized in net income in the period.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are credited or charged to equity in

other comprehensive income in the period in which they arise. For the purpose of calculating the expected return on plan assets, such assets

are valued at fair value.

S) SELLING EXPENSES

All costs related to contract proposals are expensed as incurred.




102


T) EARNINGS PER SHARE

Basic and diluted earnings per share have been determined by dividing the consolidated net income attributable to SNC-Lavalin shareholders

for the period by the basic and diluted weighted average number of shares, respectively.

The diluted weighted average number of shares outstanding is calculated as if all dilutive options had been exercised at the later of the

beginning of the reporting period or date of grant with deemed proceeds from the exercise of such dilutive options used to repurchase common

shares at the average market price for the period.

U) SHARE-BASED PAYMENTS

STOCK OPTIONSStock options granted to employees are measured at their fair value at the grant date. The estimated fair value of the stock options is

determined using the Black-Scholes option pricing model.

The fair value determined at the grant date of the stock options is expensed on a straight-line basis over the shorter of the vesting period

or the term over which an employee becomes eligible to retire, based on the Company’s estimate of stock options that will eventually vest.

At the end of each reporting period, the Company revises its estimate of the number of stock options expected to vest and the impact of such

revision, if any, is recognized in net income.

CASH-SETTLED SHARE-BASED PAYMENT ARRANGEMENTSThe objective of the 2009 Performance Share Unit plan (“2009 PSU plan”), 2009 Deferred Share Unit plan (“2009 DSU plan”), Restricted

Share Unit plan (“RSU plan”), Performance Share Unit plan (“PSU plan”) and Deferred Share Unit plan (“DSU plan”) is to align executive

compensation to the long-term objectives of the Company. For share units granted to employees under cash-settled share-based payment

arrangements, a liability is recognized and measured at the fair value of the liability. At the end of each reporting period until the liability is

settled, and at the date of settlement, the fair value of the liability is remeasured, with any changes in fair value recognized in net income

for the period.

V) PROVISIONS

A provision is a liability of uncertain timing or amount that is recognized in the consolidated statement of fi nancial position.

Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that

the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the

reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash

fl ows estimated to settle the present obligation, its carrying amount is the present value of those cash fl ows.

When some or all of the economic benefi ts required to settle a provision are expected to be recovered from a third party, a receivable is

recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.




103


3 Critical Accounting Judgments and Key Sources of Estimation UncertaintyIn the application of the Company’s accounting policies, which are described in Note 2 , management is required to make judgments, estimates,

and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and

associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ

from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period

in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects

both current and future periods.

The following are the key estimates concerning the future, and other key sources of estimation uncertainty at the end of the reporting period,

that have a signifi cant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fi nancial year.

REVENUE AND GROSS MARGIN RECOGNITIONThe determination of anticipated costs for completing a fi xed-price contract is based on estimates that can be affected by a variety of factors

such as potential variances in scheduling and cost of materials along with the availability and cost of qualifi ed labour and subcontractors,

productivity, as well as possible claims from subcontractors.

The determination of anticipated revenues includes the contractually agreed revenue and may also involve estimates of future revenues

from claims and unapproved change orders if such additional revenues can be reliably estimated and it is considered probable that they will

be recovered. A change order results from a change to the scope of the work to be performed compared to the original contract that was

signed. An example of such contract variation could be a change in the specifi cations or design of the project, whereby costs related to such

variation might be incurred prior to the client’s formal contract amendment signature. A claim represents an amount expected to be collected

from the client or a third-party as reimbursement for costs incurred that are not part of the original contract. In both cases, management’s

judgments are required in determining the probability that additional revenue will be recovered from these variations and in determining the

measurement of the amount to be recovered.

As risks and uncertainties are different for each fi xed-price project, the sources of variations between anticipated costs and actual costs

incurred will also vary for each project. In particular, while Services and Packages activities usually do not exceed 4 years, O&M activities

include fi xed-price contracts for which the duration might exceed 20 years, notably on certain public-private partnership arrangements.

The long-term nature of certain fi xed-price arrangements usually results in signifi cant estimates related to scheduling and prices.

The determination of estimates is based on SNC-Lavalin’s business practices as well as its historical experience. Furthermore, management

regularly reviews underlying estimates of project profi tability.

SERVICE CONCESSION ARRANGEMENTSThe accounting for certain ICI activities requires the application of judgment in determining if they fall within the scope of IFRIC Interpretation 12,

Service Concession Arrangements, (“IFRIC 12”). Additional judgments need to be exercised when determining, among other things,

the accounting model to be applied under IFRIC 12, the allocation of the consideration receivable between revenue-generating activities,

the classifi cation of costs incurred on such activities, the accounting treatment of rehabilitation costs and associated estimates, as well

as the effective interest rate to be applied to the fi nancial asset. As the accounting for ICI under IFRIC 12 requires the use of estimates over

the term of the arrangement, any changes to these long-term estimates could result in a signifi cant variation in the accounting for the ICI.

BASIS OF CONSOLIDATIONUnder certain circumstances, the determination of the Company’s level of power to govern the fi nancial and operating policies of another

entity requires exercise of judgment. As such, the classifi cation of the entity as a subsidiary, a joint venture, an associate or a cost investment

might require the application of judgment through the analysis of various indicators, such as the percentage of ownership interest held in

the entity, the representation on the entity’s board of directors and various other factors.



104


VALUES USED IN IMPAIRMENT TESTSDetermining whether goodwill is impaired requires an estimation of the value in use of the CGU or group of CGU to which goodwill has been

allocated. The value in use calculation requires management to estimate future cash fl ows expected to arise from the CGU or group of CGU

and a suitable discount rate in order to calculate present value.

The identifi cation of events that could have an impact on the estimated cash fl ows of the fi nancial assets and the determination of these

estimated cash fl ows require the exercise of judgment, which might result in signifi cant variances in the carrying amount of these assets.

MEASUREMENT OF RETIREMENT BENEFIT OBLIGATIONS AND OTHER POST-EMPLOYMENT BENEFIT OBLIGATIONSSNC-Lavalin’s obligations and expenses relating to defi ned benefi t pension plans and other post-employment benefi ts are determined using

actuarial valuations, and are dependent on signifi cant assumptions such as the expected long-term rate of return on plan assets and the

rate of compensation increase as determined by management. While management believes these assumptions represent its best estimate,

differences in actual results or changes in assumptions could have an impact on the obligations, expenses and amounts of actuarial gains

(losses) recognized in the consolidated statement of comprehensive income.

MEASUREMENT OF PROVISIONS SHOWN IN THE CONSOLIDATED STATEMENT OF FINANCIAL POSITIONIn measuring a provision, the Company takes risks and uncertainties into account. The uncertainties mainly relate to timing and amount

of a provision. Also, risks and uncertainties arise from discounting a provision, where the effect of the time value of money is signifi cant,

using a pre-tax discount rate that refl ects current market assessments of the time value of money. Additionally, the Company takes future

events, such as changes in the law, into account where there is suffi cient objective evidence that they will occur when measuring a provision.

MEASUREMENT OF SHARE-BASED PAYMENT EXPENSESThe Company offers the 2009 performance share unit plan to selected individuals within the organization. Subject to performance conditions,

the number of units granted is adjusted depending on the three-year cumulative annualized growth of earnings per share to determine the

number of units to which all participants receiving the award will be entitled at the end of the vesting period. At each measurement date,

management is required to estimate the number of 2009 performance share units that will vest, which impacts the amount of associated

liability and expenses.

ASSESSMENT OF DEFERRED INCOME TAX ASSETS AND LIABILITIESDeferred income tax assets and liabilities arise from temporary differences between the tax bases of assets and liabilities and their carrying

amounts reported in the fi nancial statements. Deferred income tax assets also refl ect the benefi t of unutilized tax losses that can be carried

forward to reduce income taxes in future years. This method requires the exercise of signifi cant judgment in determining whether or not

the Company’s deferred income tax assets are “probable” to be recovered from future taxable income and therefore, can be recognized in

the Company’s consolidated fi nancial statements. Also, estimates are required to determine the expected timing upon which tax assets

will be realized and upon which tax liabilities will be settled, and the enacted or substantially enacted tax rates that will apply at such time.

MEASUREMENT OF FINANCIAL INSTRUMENTS AT FAIR VALUEThe Company measures certain of its fi nancial instruments at fair value. The determination of such fair value is based on the most readily

available market data. When no readily available data is available, management is required to estimate the fair value of the instrument using

various inputs that are either, directly or indirectly observable, or not based on observable market data.

RATE-REGULATED ACTIVITIESAltaLink, a subsidiary of the Company, is an entity whose operations are subject to rate regulation. Certain estimates are necessary since

the regulatory environment in which AltaLink operates often requires amounts to be recorded at estimated values until these amounts are

fi nalized in regulatory decisions, or other regulatory proceedings. Estimates and judgments are based on historical experience, including

experience with the regulatory process, current conditions and various other assumptions that are believed to be reasonable under the

circumstances. These factors form the basis for making judgments about the carrying values of assets and liabilities.

3 Critical Accounting Judgments and Key Sources of Estimation Uncertainty (continued)



105


4 Segment DisclosuresThe Company’s results are analyzed by segment. The segments regroup related activities within SNC-Lavalin consistent with the way

management performance is evaluated:

i) Services and Packages activities relate to engineering and construction operations and are presented in the way management

performance is evaluated by regrouping its projects within the related industries, and are as follows:

> Infrastructure & Environment includes a full range of infrastructure projects for the public and private sectors including airports,

buildings, health and care, educational and recreational facilities, seaports, marine and ferry terminals, fl ood control systems,

urban transit systems, railways, roads and bridges, and water and wastewater treatment and distribution facilities. It also includes

social and environmental impact assessments and studies, community engagement, site assessment, remediation and reclamation,

ecological and human health risk assessments, waste management, water resources planning, development and supply, treatment

and sanitation, marine and coastal management, geoenvironmental services, climate change, air quality and acoustics, environmental

management, geographic information systems, and agriculture and rural development.

> Hydrocarbons & Chemicals (previously Chemicals & Petroleum) includes projects in the areas of bitumen production, heavy or

conventional oil production, onshore and offshore oil and gas, upgrading and refi ning, petrochemicals, chemicals, biofuels and green

chemicals, gas processing, liquefi ed natural gas (“LNG”) plants and re-gasifi cation terminals, coal gasifi cation, carbon capture,

transportation and storage, pipelines, terminals and pump stations.

> Mining & Metallurgy includes a full range of services for all mineral and metal recovery processes, including mine infrastructure

development, mineral processing, smelting, refi ning, mine closure and reclamation, mine and tailings management, and fertilizers.

> Power includes projects in hydro, thermal and nuclear power generation, energy from waste, green energy solutions, and transmission

and distribution.

> Other Industries combines projects in several industry sectors, namely agrifood, pharmaceuticals and biotechnology, sulphuric

acid as well as projects related to other industrial facilities not already identifi ed as part of any other preceding segments.

ii) O&M consists of providing operations, maintenance and logistics solutions for buildings, power plants, water supply and treatment

systems, desalination plants, postal services, broadcasting facilities, highways, bridges, light rail transit systems, airports, ships,

and camps for construction sites and the military.

iii) ICI regroups SNC-Lavalin’s investments in infrastructure concessions, for which further details are provided in Note 5.

The accounting policies for the segments are the same as those described in the Summary of Signifi cant Accounting Policies (Note 2) except

for imputed interest calculated on non-cash working capital position. The Company evaluates segment performance, except for the ICI

segment, using operating income, which consists of gross margin less directly related selling, general and administrative expenses, imputed

interest and corporate selling, general and administrative expenses. Imputed interest is allocated monthly to these segments at a rate of

10% per year resulting in a cost or revenue depending on whether the segment’s current assets exceed current liabilities or vice versa, while

corporate selling, general and administrative expenses are allocated based on the gross margin of each of these segments. Corporate income

taxes are not allocated to these segments.

The Company evaluates the ICI segment performance using: i) dividends or distributions received from investments accounted for by

the cost method; ii) SNC-Lavalin’s share of the net results of its investments, or dividends from ICI for which the carrying amount is $nil

(i.e., 407 International Inc.), for investments accounted for by the equity method; and iii) net income from investments accounted for by the

full consolidation method, less the portion attributable to non-controlling interests. In the case of ICI for which income taxes are payable

by the investor, such as investments in limited partnerships in Canada, corporate income taxes are allocated based on SNC-Lavalin’s tax

rate for such investments. Accordingly, the operating income from ICI is reported net of income taxes and represents SNC-Lavalin’s net

income from its ICI.



106


The following table presents revenues and operating income according to the Company’s segments:

YEAR ENDED DECEMBER 31 2011 2010

REVENUESOPERATING

INCOME REVENUESOPERATING

INCOME

Services and PackagesInfrastructure & Environment $ 1,945,147 $ 46,801 $ 1,807,120 $ 221,320

Hydrocarbons & Chemicals (1) 1,075,559 33,747 888,653 21,770

Mining & Metallurgy 1,022,006 80,611 683,821 59,547

Power (2) 894,081 119,637 496,565 116,367

Other Industries 372,515 43,228 315,049 38,621

O&M 1,399,197 50,136 1,330,459 39,432

ICI (3) 501,366 131,215 472,274 134,896

$ 7,209,871 505,375 $ 5,993,941 631,953

Reversal of items included above:

Imputed interest benefi t (29,058) (22,886)

Net fi nancial expenses from ICI 99,731 85,094

Income tax expense from ICI 12,644 14,428

Non-controlling interests before income tax expense 8,753 10,689

Income before net fi nancial expenses and income tax expense 597,445 719,278

Net fi nancial expenses (Note 23) 115,211 111,075

Income before income tax expense 482,234 608,203

Income tax expense (Note 26) 94,892 120,814

Net income $ 387,342 $ 487,389

Net income attributable to:SNC-Lavalin shareholders $ 378,800 $ 476,666

Non-controlling interests 8,542 10,723

Net income $ 387,342 $ 487,389

The Company also discloses in the table below under “Supplementary Information” its dividends from 407 International Inc. (“Highway 407”),

separately from its net income attributable to SNC-Lavalin shareholders from other ICI, from other activities and from net gains on disposals

as this information is useful in assessing the value of the Company’s share price.


Supplementary information:Net income attributable to SNC-Lavalin shareholders from ICI:

From Highway 407 $ 77,161 $ 50,323

From other ICI:

From a net gain on disposal of Trencap Limited Partnership and Valener Inc. (3) – 26,125

Excluding the net gain on disposal of Trencap Limited Partnership and Valener Inc. 54,054 58,448

Net income attributable to SNC-Lavalin shareholders excluding ICI: (2)

From a gain on disposal of certain technology solution assets – 19,625

Excluding the gain on disposal of certain technology solution assets 247,585 322,145

Net income attributable to SNC-Lavalin shareholders $ 378,800 $ 476,666

(1) Previously Chemicals & Petroleum.

(2) In 2010, SNC-Lavalin concluded an agreement with a third-party to dispose of certain technology solution assets that help manage and optimize the fl ow

of electricity through power grids. The transaction has generated a gain before taxes of $22.8 million included in Packages activities, under “Power”, resulting

in a gain after taxes of $19.6 million included in “Net income attributable to SNC-Lavalin shareholders excluding ICI” in 2010.

(3) In 2010, SNC-Lavalin sold all of its interests in Trencap Limited Partnership and Valener Inc. (Note 5B). The transactions resulted in a net gain after taxes

of $26.1 million included in “ICI” in 2010.

4 Segment Disclosures (continued)



107


As previously stated, the segment performance, except for the ICI segment, takes into account imputed interest calculated on non-cash

working capital position. As such, the table below reconciles the Company’s consolidated total assets to the sum of i) total assets from ICI;

ii) the non-cash working capital of segments from other activities; and iii) other assets from other activities:

DECEMBER 312011

DECEMBER 312010

JANUARY 12010

Total assets from ICI (Note 5):

ICI accounted for by the full consolidation method $ 3,458,683 $ 2,748,681 $ 2,304,755

ICI accounted for by the equity method 350,246 392,528 244,632

ICI accounted for by the cost method 293,241 234,420 331,231

Total assets from ICI 4,102,170 3,375,629 2,880,618

Segment non-cash working capital (defi cit) from other activities

Services and Packages

Infrastructure & Environment (197,168) (26,079) (64,353)

Hydrocarbons & Chemicals 142,561 117,653 (81,337)

Mining & Metallurgy 59,142 22,756 23,383

Power (447,594) (204,390) (34,591)

Other Industries (110,562) (85,728) (75,187)

O&M (150,410) (64,250) (92,659)

Total segment non-cash working capital (defi cit) from other activities (704,031) (240,038) (324,744)

Reversal of current liabilities included in the non-cash working capital (defi cit) above 2,877,921 2,467,251 2,218,135

Current assets from other activities, excluding cash and cash equivalents and restricted cash 2,173,890 2,227,213 1,893,391

Other assets from other activities:

Cash and cash equivalents and restricted cash from other activities 1,237,137 1,249,462 1,196,363

Property and equipment, goodwill, other non-current fi nancial assets and

other non-current assets from other activities 840,804 668,476 619,777

Total assets from other activities 4,251,831 4,145,151 3,709,531

Total assets $ 8,354,001 $ 7,520,780 $ 6,590,149

The following table presents property, equipment, goodwill and intangible assets inside and outside Canada refl ected on the Company’s

consolidated statements of fi nancial position:

DECEMBER 312011

DECEMBER 312010

JANUARY 12010

Property, equipment, goodwill and intangible assetsCanada:

From ICI $ 2,946,470 $ 2,361,565 $ 1,971,077

From other activities 284,896 202,164 197,316

3,231,366 2,563,729 2,168,393

Outside Canada:From ICI 7,762 – –


318,434 251,267 231,432

$ 3,549,800 $ 2,814,996 $ 2,399,825




108


The following table presents revenues by geographic area according to project location:

YEAR ENDED DECEMBER 31 2011

SERVICES AND PACKAGES O&M ICI TOTAL

Revenues by geographic areaCanada $ 2,325,973 $ 1,195,863 $ 480,663 $ 4,002,499Africa 1,035,779 85,628 19,308 1,140,715Europe 571,963 49,725 2,392 624,080Latin America 480,921 45,815 – 526,736Middle East 388,118 3,033 – 391,151United States 247,533 – (997) 246,536Asia Pacifi c 222,226 19,133 – 241,359Other Regions 36,795 – – 36,795

$ 5,309,308 $ 1,399,197 $ 501,366 $ 7,209,871

YEAR ENDED DECEMBER 31 2010

SERVICES AND PACKAGES O&M ICI TOTAL

Revenues by geographic areaCanada $ 1,449,436 $ 1,179,730 $ 445,841 $ 3,075,007

Africa 1,123,709 76,777 25,510 1,225,996

Europe 446,588 24,911 2,202 473,701

Latin America 343,069 23,644 – 366,713

Middle East 396,616 2,906 – 399,522

United States 221,243 – (1,279) 219,964

Asia Pacifi c 159,324 22,491 – 181,815

Other Regions 51,223 – – 51,223

$ 4,191,208 $ 1,330,459 $ 472,274 $ 5,993,941




109


5 Infrastructure Concession Investments (“ICI”)SNC-Lavalin makes investments in infrastructure concessions in certain infrastructure for public services, such as airports, bridges, cultural

and public service buildings, power, mass transit systems, roads and water.

In accordance with IFRS, SNC-Lavalin’s infrastructure concession investments are accounted for as follows:

ACCOUNTING METHODTYPE OF INFLUENCE ACCOUNTING METHOD

Non-signifi cant infl uence Cost method

Signifi cant infl uence Equity method

Joint control Equity method

Control Full consolidation method

ACCOUNTING MODELTYPE OF CONCESSION ACCOUNTING MODEL

ICI accounted for under IFRIC 12 Financial asset model when concessionaire bears no demand risk

Intangible asset model when concessionaire bears demand risk

Bifurcated model when concessionaire and grantor share demand risk

ICI outside the scope of application of IFRIC 12 Model based on specifi c facts and circumstances, but usually with infrastructure asset

accounted for as property and equipment

The main concessions and public-private partnerships contracts reported under IFRIC Interpretation 12, Service Concession Arrangements,

(“IFRIC 12”) are all accounted for under the fi nancial asset model, except the Rayalseema Expressway Private Limited (“REPL”) concession,

which is accounted for under the intangible asset model, and the Société d’Exploitation de l’Aéroport de Mayotte S.A.S. concession, which

is accounted for under the bifurcated model.

In order to provide the reader of the fi nancial statements with a better understanding of the fi nancial position and results of operations of its

ICI, the Company presents certain distinct fi nancial information related specifi cally to its ICI throughout its fi nancial statements, as well as

certain additional information below.

A) ADDITIONS OF ICI AND INCREASED OWNERSHIP INTEREST IN ICI

I) IN 2011

MAYOTTE DAOUDZI AIRPORTIn April 2011, Société d’Exploitation de l’Aéroport de Mayotte S.A.S., a wholly-owned subsidiary of the Company, entered into an agreement

with the French government to upgrade the infrastructure and build a new terminal building for the Mayotte airport, on a French island

located in the Indian Ocean. Société d’Exploitation de l’Aéroport de Mayotte S.A.S. also has the mandate to manage and maintain the

airport, in addition to assuming the commercial development, for a 15-year period. The Company committed to invest in this ICI an amount

of €10.6 million (approximately $14 million) in equity.

ALTALINKIn September 2011, SNC-Lavalin completed the acquisition of Macquarie Essential Assets Partnership’s (“MEAP”) 23.08% ownership interest

in AltaLink for a total consideration of $228.8 million in cash. As part of the transaction, SNC-Lavalin recognized an additional $9.1 million

of deferred income tax liability. The transaction increased the Company’s ownership of AltaLink from 76.92% to 100%.



110


The following summarizes the effect of this transaction on equity attributable to SNC-Lavalin shareholders:

Cash consideration paid for the additional 23.08% ownership interest in AltaLink, including transaction costs $ 228,816Recognition of deferred income tax liability 9,118

Total consideration and liability related to the equity transaction 237,934Less: Carrying amount of non-controlling interests at the date of acquisition 110,813

Difference recognized as a reduction of equity attributable to SNC-Lavalin shareholders $ 127,121

Upon acquisition of the remaining interest in AltaLink, SNC-Lavalin also acquired from MEAP a debenture issued by one of the Company’s

subsidiaries with a face value of $45.0 million, plus accrued interest. The acquisition of the debenture for a consideration of $50.0 million plus

accrued interest of $1.1 million for a total consideration of $51.1 million in cash resulted in a loss before taxes of $5.0 million ($3.8 million after

taxes). This loss is due to the fact that SNC-Lavalin’s subsidiary that issued the debenture was carrying it at amortized cost in its statement

of fi nancial position in accordance with IFRS while the receivable relating to this debenture recognized in the statement of fi nancial position

of another SNC-Lavalin’s subsidiary was carried at the amount of consideration paid of $50.0 million, which corresponds to its fair value.

Upon consolidation, both the asset and the liability of the subsidiaries are eliminated.

The following summarizes the effect of the acquisition of the 23.08% ownership interest and $45.0 million debenture on the carrying amount

of SNC-Lavalin’s investment in AltaLink, at the date of transaction:

Carrying amount of 23.08% ownership interest of non-controlling interests acquired, prior to the date of acquisition $ 110,813Carrying amount of debenture and accrued interest acquired by SNC-Lavalin and eliminated at consolidated level 46,062

Net increase in SNC-Lavalin’s ownership interest in AltaLink 156,875Carrying amount of SNC-Lavalin’s 76.92% ownership interest in AltaLink, excluding carrying amount of non-controlling interests 370,859

Carrying amount of SNC-Lavalin’s 100% ownership interest in AltaLink, after the acquisition $ 527,734

As previously indicated, the carrying amount of SNC-Lavalin’s 100% ownership interest in AltaLink of $527.7 million has not been increased

by the difference between i) the total consideration of $237.9 million and ii) the carrying amount of the 23.08% ownership interest of the

non-controlling interests prior to the acquisition of $110.8 million, since that difference of $127.1 million was recognized as a reduction of

equity attributable to SNC-Lavalin shareholders.

RAINBOW HOSPITAL PARTNERSHIPIn September 2011, Rainbow Hospital Partnership (“Rainbow”), wholly-owned by SNC-Lavalin, was awarded a public-private partnership contract

by the Government of New Brunswick for the design, construction, commissioning, fi nancing and certain operation and maintenance functions

of the new Restigouche Hospital Centre for psychiatric care in Campbellton, New Brunswick. Rainbow subcontracted the construction of the

new hospital to an SNC-Lavalin-led joint venture. It will have 140 beds in seven in-patient units with facilities for education and research, clinical

support, and administration and general support services. It will also serve as the forensic psychiatry facility for the province. SNC-Lavalin

Operations & Maintenance will provide the operations and maintenance activities for the centre for a total of 30 years.

SNC-Lavalin’s investment in Rainbow is accounted for by the full consolidation method.

5 Infrastructure Concession Investments (“ICI”) (continued)



111


II) IN 2010

CHINOOK ROADS PARTNERSHIPAt the end of March 2010, Chinook Roads Partnership (“Chinook”), an entity accounted for by the equity method in which SNC-Lavalin

holds a 50% equity interest, entered into a contract with Alberta Transportation to design, build, operate, maintain and partially fi nance the

southeast section of Calgary’s Stoney Trail Ring Road, in Canada.

Under this public-private partnership contract, Chinook will design and build 25 kilometres of a six-lane road including nine interchanges,

one road and two rail fl yovers, and 27 bridge structures. Once completed, Chinook will operate and maintain the road and other existing

infrastructure until 2043.

Upon signing the contract with Alberta Transportation, Chinook subcontracted the engineering, procurement and construction (“EPC”) and

the O&M work to joint ventures 50% owned by SNC-Lavalin.

SNC-Lavalin and its partner committed to invest a total of $32.3 million in equity and subordinated debt in Chinook.

MCGILL UNIVERSITY HEALTH CENTRE PROJECTIn July 2010, SNC-Lavalin, its partner and the McGill University Health Centre (“MUHC”) announced the fi nancial closure and offi cial signing

of a partnership agreement between MUHC and Groupe immobilier santé McGill (“MIHG”), composed of SNC-Lavalin and Innisfree Ltd. Under

this 34-year public-private partnership, MIHG will design, build, fi nance and maintain MUHC’s new Glen Campus, comprised mainly of two

hospitals, a cancer centre and a research institute, located in Montreal, Canada.

Also in July 2010, MIHG awarded to SNC-Lavalin an EPC contract for approximately $1.6 billion to design and build the facilities. Construction

is underway and is expected to be completed in the autumn of 2014. Once completed, MIHG will maintain the campus for the next 30 years.

SNC-Lavalin and its partner committed to invest, directly or indirectly, an amount of $191.8 million in equity and subordinated debt.

SNC-Lavalin’s investment in MIHG is accounted for by the equity method.

RAYALSEEMA EXPRESSWAY PRIVATE LIMITEDThe Company acquired in 2010 a 36.9% equity interest in Rayalseema Expressway Private Limited (“REPL”), an entity that had previously

entered into a contract with the National Highways Authority of India to build and operate the 189-kilometre Cuddapah-Kurnool section

of National Highway 18, in the state of Andhra Pradesh, India. Under this 30-year public-private partnership contract, REPL will expand the

existing two-lane stretch to four lanes and operate the section of the toll highway. SNC-Lavalin committed to invest then an amount of

$36.7 million in equity and subordinated debt. SNC-Lavalin’s investment in REPL is accounted for by the equity method.

B) DISPOSALS OF ICI

I) IN 2010

VALENER INC. (PREVIOUSLY GAZ MÉTRO LIMITED PARTERSHIP)In October 2010, SNC-Lavalin had entered into an agreement with a group of fi nancial institutions to sell all of its 10.07% equity interest

in Valener Inc. (“Valener”) consisting of 3,516,453 common shares of Valener, on an underwritten block trade basis, for net proceeds of

$58.7 million, resulting in a loss after taxes of $1.3 million. The transaction was closed in November 2010.

TRENCAP LIMITED PARTNERSHIPIn November 2010, SNC-Lavalin had entered into an agreement with Caisse de dépôt et placement du Québec to sell all of its 11.1% interest

in Trencap Limited Partnership. The transaction generated net proceeds of $118.2 million and resulted in a gain after taxes of $27.4 million.




112


C) NET BOOK VALUE AND DESCRIPTIONS OF ICI

The Company’s consolidated statement of fi nancial position includes the following assets and liabilities from its ICI:

DECEMBER 312011

DECEMBER 312010

JANUARY 12010

Cash and cash equivalents $ 30,901 $ 16,757 $ 15,612

Restricted cash 2,365 8,235 10,800

Trade receivable, other current fi nancial assets and other current assets 101,989 64,813 41,413

Property and equipment 2,637,735 2,072,814 1,725,206

Goodwill 203,786 203,786 203,786

Non-current fi nancial assets 366,869 294,851 265,516

Other non-current assets 115,038 87,425 42,422

Total assets 3,458,683 2,748,681 2,304,755

Trade payables, deferred revenues, other current fi nancial liabilities and

other current liabilities 246,599 142,560 150,216

Non-recourse short-term debt and current portion of non-recourse long-term debt 327,381 38,762 51,596

Non-recourse long-term debt 1,561,377 1,529,024 1,258,402

Other non-current fi nancial liabilities 113,958 69,932 77,404

Provisions and other non-current liabilities 487,510 428,796 374,141

Non-controlling interests – 98,172 76,886

Total liabilities and non-controlling interests 2,736,825 2,307,246 1,988,645

Net assets from ICI accounted for by the full consolidation method $ 721,858 $ 441,435 $ 316,110

Net book value of ICI accounted for by the equity method $ 350,246 $ 392,528 $ 244,632

Net book value of ICI accounted for by the cost method 293,241 234,420 331,231

Net book value of ICI accounted for by the equity or cost methods $ 643,487 $ 626,948 $ 575,863

Total net book value of ICI $ 1,365,345 $ 1,068,383 $ 891,973




113


I) ICI ACCOUNTED FOR BY THE FULL CONSOLIDATION METHODSNC-Lavalin’s main ICI accounted for by the full consolidation method are detailed below:

OWNERSHIP INTEREST

NAME OF ICI PRINCIPAL ACTIVITYSUBJECT TO IFRIC 12

MATURITY OF CONCESSION AGREEMENT LOCATION

DECEMBER 312011

DECEMBER 312010

JANUARY 12010

AltaLink (1) Rate-regulated transmission

lines and substations

No N/A Canada 100.0% 76.92% 76.92%

Ovation Real Estate Group

(Quebec) Inc. (“Ovation”)

2,100-seat acoustic concert

hall under a 29-year

concession agreement

Yes 2038 Canada 100.0% 100.0% 100.0%

Okanagan Lake

Concession Limited

Partnership (“Okanagan

Lake Concession”)

1.1-km William R. Bennett

Bridge under a 30-year


Yes 2035 Canada 100.0% 100.0% 100.0%

Rainbow Hospital

Partnership (“Rainbow”)

Restigouche Hospital

Center for psychiatric care

(under construction)

Yes 2044 Canada 100.0% – –


de l’Aéroport de

Mayotte S.A.S.

Mayotte airport

under a 15-year



Yes 2026 France 100.0% – –

(1) SNC-Lavalin holds an ownership interest of 100% in AltaLink Holdings, L.P. (“AltaLink”), and ultimately owns 100% of all of its subsidiaries, including AltaLink, L.P.,

the owner and operator of transmission lines and substations subject to rate regulation.

N/A: not applicable

The Company’s consolidated income statement includes the following revenues and net income from these investments:


Revenues and net income included in the Company’s consolidated income statement:Revenues $ 398,539 $ 362,128

Net income from ICI accounted for by the full consolidation method, less the portion attributable

to non-controlling interests $ 28,388 $ 24,750




114


II) ICI ACCOUNTED FOR BY THE EQUITY METHODSNC-Lavalin’s main ICI accounted for by the equity method are listed below:

OWNERSHIP INTEREST

NAME OF ICI PRINCIPAL ACTIVITYSUBJECT TO IFRIC 12


DECEMBER 312011

DECEMBER 312010

JANUARY 12010

Jointly controlled entities:407 International Inc. (1)

(“Highway 407”)

108-km toll highway

under a 99-year


No 2098 Canada 16.77% 16.77% 16.77%

Chinook Roads

Partnership (“Chinook”)

25-km of six-lane road


Yes 2043 Canada 50.0% 50.0% –

Groupe Immobilier

Santé McGill (2) (“MIHG”)

McGill University

Health Centre — Glen

Campus under a 34-year



Yes 2044 Canada 60.0% 60.0% –

TC Dôme S.A.S. (2)

(“TC Dôme”)

5.3-km electric cog railway


Yes 2043 France 51.0% 51.0% 51.0%

Associates:Astoria Project

Partners LLC

500 MW natural-gas

power plant

No N/A U.S.A. 21.0% 21.0% 21.0%

Astoria Project

Partners II LLC (3)550 MW natural-gas

power plant

No N/A U.S.A. 18.5% 18.5% 18.5%

InTransit BC Limited

Partnership (“InTransit BC”)

19-km rapid transit line Yes 2040 Canada 33.3% 33.3% 33.3%

Malta International

Airport p.l.c. (3)65-year concession

agreement to operate the

Malta airport

No 2067 Malta 15.5% 15.5% 15.5%

Myah Tipaza S.p.A. Seawater desalination

plant to supply treated

water under a 25-year

take-or-pay agreement

No N/A Algeria 25.5% 25.5% 25.5%

Rayalseema Expressway

Private Limited (“REPL”)

30-year concession

agreement to build

and operate a 189-km

toll highway section


Yes 2040 India 36.9% 36.9% –


de Vatry Europort S.A. (2)20-year concession

agreement to operate the

Vatry airport

No 2020 France 51.1% 51.1% 51.1%

Shariket Kahraba Hadjret

En Nouss S.p.A.

1,227 MW gas-fi red thermal

power plant supplying

electricity under a 20-year

take-or-pay agreement

No N/A Algeria 26.0% 26.0% 26.0%

(1) Although the Company holds less than 20% of the equity shares of Highway 407, the Company exercises joint control over this entity based on its

contractual agreements.

(2) Although the Company’s ownership interest in MIHG, TC Dôme and Société d’Exploitation de Vatry Europort S.A. is more than 50%, the Company does not

exercise control over these entities based on its contractual agreements.

(3) Although the Company’s ownership interest in Astoria Project Partners II LLC and in Malta International Airport p.l.c. is less than 20%, the Company exercises

signifi cant infl uence over these entities based on its contractual agreements.

N/A: not applicable




115


ICI ACCOUNTED FOR BY THE EQUITY METHOD–JOINTLY CONTROLLED ENTITIESSNC-Lavalin carries out part of its ICI activity through jointly controlled entities which are accounted for by the equity method. The aggregate

amounts of current assets, non-current assets, current liabilities, non-current liabilities, revenues and expenses related to such jointly

controlled entities are summarized below:


Income statements (at 100%)Revenues (at 100%) $ 1,230,428 $ 918,211

Expenses (at 100%) 1,098,108 840,642

Net income (at 100%) $ 132,320 $ 77,569

Company’s share of net income of ICI based on its ownership interest (1) $ 23,737 $ 12,531

Company’s net income from ICI reported in its income statement (1) $ 79,364 $ 49,946

DECEMBER 31 2011

DECEMBER 31 2010

JANUARY 1 2010

Statements of fi nancial positionCurrent assets (at 100%) $ 1,205,494 $ 1,008,568 $ 526,514

Non-current assets (at 100%) 5,113,502 5,184,081 4,311,504

Total assets (at 100%) $ 6,318,996 $ 6,192,649 $ 4,838,018

Current liabilities (at 100%) $ 344,151 $ 359,712 $ 920,604

Non-current liabilities (at 100%) 6,815,088 6,332,419 4,187,771

Total liabilities (at 100%) $ 7,159,239 $ 6,692,131 $ 5,108,375

Net liabilities (at 100%) $ (840,243) $ (499,482) $ (270,357)

Company’s carrying value of ICI reported in its statement of fi nancial position (1) $ 124,206 $ 131,022 $ 10,050

(1) Under the equity method of accounting, distributions from a jointly controlled entity reduce the carrying amount of the investment. The equity method of accounting

requires the Company to stop recognizing its share of the losses of a jointly controlled entity when the recognition of such losses results in a negative balance for

its investment, or where dividends payable by the jointly controlled entity are in excess of the carrying amount of the investment. In these events, the carrying

value of the investment is reduced to $nil, but does not become negative, unless the Company has incurred legal or constructive obligations or made payments

on behalf of the jointly controlled entity. The excess amount of dividends payable by a jointly controlled entity is recognized in net income of the Company.

As a result, the Company recognized in its income statement dividends from Highway 407 of $77.2 million in 2011 (2010: $50.3 million) and did not recognize its

share of Highway 407’s net income of $21.5 million (2010: $12.9 million) in the same period, as the carrying amount of its investment in Highway 407 was $nil

at December 31, 2011, December 31, 2010 and January 1, 2010.

ICI ACCOUNTED FOR BY THE EQUITY METHOD–ASSOCIATESThe summary tables below provide supplementary information in respect of the Company’s ICI that are associates:


Total revenue (at 100%) $ 724,369 $ 671,659

Total net income (at 100%) $ 99,429 $ 133,845

Company’s share of net income of ICI $ 23,463 $ 26,951

DECEMBER 31 2011

DECEMBER 31 2010

JANUARY 1 2010

Total assets (at 100%) $ 4,322,081 $ 3,978,903 $ 3,721,443

Total liabilities (at 100%) 3,691,152 3,326,966 3,151,554

Net assets (at 100%) $ 630,929 $ 651,937 $ 569,889

Company’s share of net assets of ICI $ 226,040 $ 261,506 $ 234,582




116


III) ICI ACCOUNTED FOR BY THE COST METHODSNC-Lavalin’s main ICI accounted for by the cost method are listed below:

OWNERSHIP INTEREST

NAME OF ICI PRINCIPAL ACTIVITY


DECEMBER 312011

DECEMBER 312010

JANUARY 12010

Ambatovy Nickel

Project (“Ambatovy”)

Open-pit mine and

hydrometallurgical processing

plant (under construction)

N/A Madagascar 5.0% 5.0% 5.0%

Valener Inc. (previously Gaz

Métro Limited Partnership) (1)Publicly traded entity

involved mainly in natural

gas distribution

N/A Canada – – 2.42%

Trencap Limited Partnership (1) Holds an indirect interest in

Gaz Métro

N/A Canada – – 11.1%

(1) In 2010, SNC-Lavalin sold all of its ownership interest in Trencap Limited Partnership and Valener Inc.

N/A: not applicable

The Company’s consolidated income includes the following revenues from these investments:


Dividends and distributions from ICI accounted for by the cost method included

in the Company’s consolidated income statements $ – $ 7,124

Net gain on disposals of ICI accounted for by the cost method included in the

Company’s consolidated income statements, after taxes $ – $ 26,125




117


D) PAYMENTS AND REMAINING COMMITMENTS IN ICI

When making investments in infrastructure concessions, SNC-Lavalin may not be required to make its contribution immediately but instead

may commit to make its contribution over time.

The following table summarizes SNC-Lavalin’s payments and outstanding commitments to invest in ICI accounted for by the equity or cost

methods as at December 31, 2011 and 2010 and January 1, 2010:

2011 2010

Commitments to invest in ICI — January 1 $ 214,678 $ 105,600

Increase in commitments to invest in ICI 45,538 201,806

Payments for ICI during the year (101,138) (92,728)

Commitments to invest in ICI — December 31 $ 159,078 $ 214,678

At December 31, 2011, the commitments to invest in ICI were related to contributions for Ambatovy, Chinook, MIHG and TC Dôme

(December 31, 2010: Ambatovy, Astoria II, Chinook, MIHG, REPL and TC Dôme; and January 1, 2010: Ambatovy and Astoria II) and were

presented as “Other current fi nancial liabilities” since they are either expected to be paid in the following year or are callable on demand.

In addition to the commitments presented above, SNC-Lavalin provides a US$105 million fi nancial guarantee (December 31, 2010 and

January 1, 2010: US$105 million) and a US$70 million cross-guarantee (December 31, 2010 and January 1, 2010: US$70 million) to

the Ambatovy project’s lenders, which are not recognized in the Company’s consolidated statement of fi nancial position. The amount of

US$175 million represents the maximum that could be paid if both the fi nancial guarantee and cross-guarantee were called upon once

the project debt fi nancing is fully drawn. Both guarantees will remain outstanding until certain legal, fi nancial and operating conditions are

satisfi ed upon completion of construction and commissioning of the project.

In addition, SNC-Lavalin is committed to fi nance a portion of the contribution of one of Ambatovy’s shareholders, which is also the project

operator (“Project Operator”), for up to US$57.3 million (CA$58.3 million) (December 31, 2010: US$57.3 million [CA$57.4 million] and

January 1, 2010: US$57.3 million [CA$60.3 million]). At December 31, 2011, SNC-Lavalin had loaned US$57.3 million (CA$58.3 million)

(December 31, 2010: US$53.5 million [CA$53.5 million] and January 1, 2010: US$40.0 million [CA$42.1 million]) presented in “ICI accounted

for by the equity or cost methods”.




118


6 Acquisition of Businesses

A) BUSINESSES ACQUIRED

In 2011, SNC-Lavalin completed the following business acquisitions, which added approximately 2,900 people to its workforce:

In May 2011, Groupe Stavibel, a multidisciplinary consulting engineering fi rm based in Abitibi-Témiscamingue, Quebec. Groupe Stavibel

provides engineering consulting expertise in numerous fi elds of activity in the buildings, infrastructure, transport, mining, and environment

sectors. The fi rm has approximately 300 permanent employees working in several offi ces throughout Abitibi-Témiscamingue and in the

Greater Montreal area.

In June 2011, Aqua Data, a company of about 100 employees specializing in the computerized diagnosis and analysis of water distribution

systems and wastewater collection systems for municipal, commercial and industrial clients. Formerly a subsidiary of Gaz Métro, Aqua Data

has clients in Quebec, Ontario, the Maritimes and the United States. Its head offi ce is in Pincourt, Quebec, near Montreal.

In July 2011, MDH Engineered Solutions, an engineering consulting and research fi rm based in Saskatoon, Saskatchewan. MDH Engineered

Solutions provides geo-environmental, geotechnical, hydrogeological and environmental engineering consulting services to the mining, oil and

gas, transportation, utility and government sectors. The fi rm has approximately 175 permanent employees working in offi ces in Saskatoon,

Regina, Prince Albert and Esterhazy, Saskatchewan, and in Edmonton and Fort McMurray, Alberta.

In October 2011, Candu Energy Inc., a wholly-owned subsidiary of the Company, acquired certain assets of Atomic Energy of Canada Limited’s

(“AECL”) commercial reactor division. Approximately 1,400 employees transitioned from AECL to Candu Energy Inc. In addition to the

acquisition, Candu Energy Inc. will work towards completing the Enhanced CANDU reactor (EC6) development program.

In October 2011, Interfl eet Technology (“Interfl eet”), an international rail technology consultancy group headquartered in Derby, United Kingdom.

Interfl eet specializes in rolling stock, railway systems, and strategic railway management and is well-known for its detailed understanding of

both national rail systems and international best-practice. Interfl eet has approximately 600 employees in 22 locations. Interfl eet serves public

and private clients around the world from its offi ces in United Kingdom, Scandinavia, Central Europe, Australasia, India and North America.

In December 2011, Arcturus Realty Corporation (“Arcturus”), an entity that manages over 35 million square feet of offi ce, retail and industrial

properties in Canada. With over 350 employees, Arcturus provides a comprehensive scope of real estate services including property

management, leasing, development advisory services and facilities management. Its client base consists of fi nancial institutions, insurance

companies, major retailers, public sector and private investors.

In December 2011, Harder Associates Engineering Consulting, an engineering consulting fi rm based in Fort St. John, British Columbia.

Harder Associates Engineering Consulting provides consulting services in construction, upstream oil and gas, and environmental and

geotechnical fi elds. The fi rm has 16 employees working in offi ces in Fort St. John and Fort Nelson, British Columbia, and Grande Prairie, Alberta.

In 2010, SNC-Lavalin completed the following business acquisitions, which added approximately 1,200 people to its workforce:

In April 2010, a South African fi rm, B E Morgan Associates (Proprietary) Limited, specializing in engineering and construction of various

industrial facilities and that also provides project management and contracting services primarily to various South African corporations,

employing approximately 50 people.

In December 2010, Itansuca Proyectos de Ingenieria S.A., an engineering fi rm in the hydrocarbons and chemicals sector based in Bogota,

Colombia, that employs approximately 1,000 people. Since 1989, Itansuca Proyectos de Ingenieria S.A. has been offering energy consulting,

electromechanical installation, design and supervision services from its Bogota head offi ce and 21 other locations around the country to

clients in Colombia and in a number of other countries around the world.

During 2010, five engineering firms in France, namely EBI Conseil, Groupe Teco, Pénicaud Architecture Environnement EURL,

ETF Ingénierie — Société d’ingénieurs conseils and Groupe Setor, that employ a total of approximately 160 people.

During 2010, two engineering fi rms in Montreal, Canada, namely Nucleonex Inc. and Hydrosult, that employ a total of approximately 20 people.



119


B) ALLOCATION OF PURCHASE PRICE

These acquisitions have been accounted for using the acquisition method and consolidated from the effective date of acquisition. All business

acquisitions completed by SNC-Lavalin in 2011 and 2010 were for 100% of the voting shares, except for the acquisition of certain assets of

AECL in October 2011.

The purchase price for these business acquisitions, subject to fi nal adjustments, was $131.4 million (2010: $39.1 million), net of cash and

cash equivalents existing in these businesses at the time of acquisition of $2.5 million (2010: $9.9 million). The allocation of the purchase

price to acquire these businesses and the total cash consideration paid were as follows:


Cash and cash equivalents $ 2,530 $ 9,896

Trade receivables and other current assets 79,908 27,230

Contracts in progress 11,870 171

Property and equipment 24,970 1,767

Other non-current assets 3,448 1,188

Trade payables (39,279) (16,389)

Other liabilities assumed (55,130) (3,402)

Net identifi able assets of businesses acquired 28,317 20,461

Goodwill 105,653 28,576

Total purchase price 133,970 49,037

Less: Cash and cash equivalents at acquisition 2,530 9,896

Total purchase price, net of cash and cash equivalents at acquisition 131,440 39,141

Less: Balance of purchase price payable in future years 18,455 19,195

Cash consideration paid for businesses acquired in the year 112,985 19,946

Plus: Balance of purchase price from previous years paid in current year 27,414 19,218

Cash consideration paid for acquisition of businesses presented on consolidated statements of cash fl ows $ 140,399 $ 39,164

C) GOODWILL ARISING ON BUSINESS ACQUISITIONS

Goodwill arose in the business combinations because the consideration paid for the combinations effectively included amounts in relation

to the benefi t of expected synergies, revenue growth, future market development and the assembled workforce. These benefi ts are not

recognized separately from goodwill as the future economic benefi ts arising from them cannot be reliably measured.

D) BUSINESS ACQUISITION COSTS

For the year ended December 31, 2011, business acquisition costs of $4.0 million (2010: $1.6 million) related to the transactions described

above and were included in the selling, general and administrative expenses in the consolidated income statement.

E) IMPACT OF BUSINESS ACQUISITIONS ON THE RESULTS OF SNC-LAVALIN

SNC-Lavalin’s consolidated revenues and net income attributable to SNC-Lavalin shareholders in 2011 included approximately $142.1 million

and $9.2 million, respectively, from business acquisitions completed in 2011. Had 2011 business acquisitions all occurred on January 1, 2011,

SNC-Lavalin’s pro-forma consolidated revenues and net income attributable to SNC-Lavalin shareholders would have been approximately

$7,542.1 million and $397.9 million, respectively. These pro-forma fi gures have been estimated based on the results of the acquired businesses

prior to being purchased by SNC-Lavalin, adjusted to refl ect the Company’s accounting policies when signifi cant differences existed, and should

not be viewed as indicative of SNC-Lavalin’s future results.

6 Acquisition of Businesses (continued)



120


7 Cash and Cash Equivalents and Restricted CashA) CASH AND CASH EQUIVALENTS

DECEMBER 31 2011

DECEMBER 31 2010

JANUARY 1 2010

Bank balances, bank term deposits and bankers’ acceptances $ 1,231,049 $ 1,235,085 $ 1,190,778

Government treasury bills and treasury notes – – 620

Cash and cash equivalents $ 1,231,049 $ 1,235,085 $ 1,191,398

B) RESTRICTED CASH

DECEMBER 31 2011

DECEMBER 31 2010

JANUARY 1 2010

Bank balances, bank term deposits and bankers’ acceptances $ 40,981 $ 40,283 $ 32,253

Government treasury bills and treasury notes 4,471 5,184 5,061

Restricted cash — current and non-current $ 45,452 $ 45,467 $ 37,314

Presented on the statement of fi nancial position as follows:Current assets — “Restricted cash” $ 39,354 $ 39,369 $ 31,377

Non-current assets — included in “Non-current fi nancial assets” (Note 13) $ 6,098 $ 6,098 $ 5,937

8 Trade ReceivablesThe following table presents the Company’s trade receivables that are within normal terms of payment separately from those that are past

due, with reconciliation to the net carrying amount:

DECEMBER 31 2011

DECEMBER 31 2010

JANUARY 1 2010

Trade receivables:

Within normal terms of payment $ 851,875 $ 967,424 $ 830,087

Past due 417,604 385,720 275,883

Total trade receivables 1,269,479 1,353,144 1,105,970

Allowance for doubtful accounts (113,935) (79,635) (63,549)

Trade receivables, net of allowance for doubtful accounts $ 1,155,544 $ 1,273,509 $ 1,042,421

The allowance for doubtful accounts is established based on SNC-Lavalin’s best estimates on the recovery of balances for which collection

may be uncertain. Uncertainty of collection may become apparent from various indicators, such as a deterioration of the credit situation of

a given client or delay in collection when the aging of invoices exceeds the normal payment terms. Management regularly reviews trade

receivables and assesses the appropriateness of the allowance for doubtful accounts.

The change in the allowance for doubtful accounts is detailed below:


Balance at beginning of year $ 79,635 $ 63,549

Change in allowance, other than write-offs and recoveries 61,137 39,018

Write-offs of trade receivables (10,555) (8,451)

Recoveries (16,282) (14,481)

Balance at end of year $ 113,935 $ 79,635



121


9 Other Current Financial AssetsDECEMBER 31

2011DECEMBER 31

2010JANUARY 1

2010

Retentions on client contracts $ 139,520 $ 77,000 $ 71,362

Advances to suppliers, subcontractors and employees and deposits on contracts 99,014 93,141 127,174

Derivative fi nancial instruments used for cash fl ow hedges — favourable fair value 42,960 37,793 26,448

Cash-settled share-based payment arrangement asset (Note 21C) 39,671 34,544 47,766

Current portion of receivables under service concession arrangements 21,766 19,115 1,694

Other 53,621 28,661 5,361

Other current fi nancial assets $ 396,552 $ 290,254 $ 279,805

10 Other Current AssetsDECEMBER 31

2011DECEMBER 31

2010JANUARY 1

2010

Income taxes and other taxes receivable $ 133,571 $ 94,352 $ 108,761

Prepaid expenses and other 32,992 25,776 24,180

Other current assets $ 166,563 $ 120,128 $ 132,941

11 Property and EquipmentA) PROPERTY AND EQUIPMENT FROM ICI

PROPERTY AND EQUIPMENT

OF ALTALINK

Gross carrying amountBalance as at January 1, 2011 $ 2,149,288Additions 648,911

Balance as at December 31, 2011 $ 2,798,199

Accumulated depreciationBalance as at January 1, 2011 76,474Depreciation expense 83,990

Balance as at December 31, 2011 $ 160,464

PROPERTY AND EQUIPMENT

OF ALTALINK

Gross carrying amountBalance as at January 1, 2010 $ 1,725,206

Additions 424,082

Balance as at December 31, 2010 $ 2,149,288

Accumulated depreciationBalance as at January 1, 2010 –

Depreciation expense 76,474

Balance as at December 31, 2010 $ 76,474

Net book value:

As at January 1, 2010 $ 1,725,206

As at December 31, 2010 $ 2,072,814

As at December 31, 2011 $ 2,637,735

An amount of $671.2 million as at December 31, 2011 (December 31, 2010: $302.8 million and January 1, 2010: $353.7 million) of property

and equipment from ICI was not being depreciated as the corresponding assets are mainly transmission assets of AltaLink under construction.

AltaLink has a contractual commitment to acquire property and equipment of $1,062.1 million as at December 31, 2011.



122


11 Property and Equipment (continued)

B) PROPERTY AND EQUIPMENT FROM OTHER ACTIVITIES

BUILDINGSCOMPUTER

EQUIPMENTOFFICE

FURNITURE OTHER TOTAL

Gross carrying amountBalance as at January 1, 2011 $ 67,170 $ 251,477 $ 107,055 $ 58,367 $ 484,069Additions 7,016 31,854 13,637 14,641 67,148Additions through business acquisitions 4,335 3,431 10,269 6,935 24,970Effect of foreign currency exchange differences (643) (1,668) (521) (495) (3,327)Disposals/retirements/salvage – (15,777) (4,945) (1,482) (22,204)

Balance as at December 31, 2011 $ 77,878 $ 269,317 $ 125,495 $ 77,966 $ 550,656

Accumulated depreciation Balance as at January 1, 2011 26,602 224,774 80,525 36,979 368,880Depreciation expense 2,979 25,341 8,666 6,814 43,800Effect of foreign currency exchange differences (28) (1,400) (189) (237) (1,854)Disposals/retirements/salvage – (15,365) (4,014) (674) (20,053)


BUILDINGSCOMPUTER EQUIPMENT

OFFICE FURNITURE OTHER TOTAL

Gross carrying amountBalance as at January 1, 2010 $ 65,579 $ 237,226 $ 105,382 $ 55,717 $ 463,904

Additions 3,089 24,816 9,089 8,893 45,887

Additions through business acquisitions 856 188 635 88 1,767

Effect of foreign currency exchange differences (28) (3,078) (1,783) (954) (5,843)

Disposals/retirements/salvage (2,326) (7,675) (6,268) (5,377) (21,646)


Accumulated depreciationBalance as at January 1, 2010 24,560 211,608 80,248 35,816 352,232

Depreciation expense 2,532 23,084 6,710 6,260 38,586

Effect of foreign currency exchange differences – (2,789) (1,380) (492) (4,661)

Disposals/retirements/salvage (490) (7,129) (5,053) (4,605) (17,277)


Net book value:

As at January 1, 2010 $ 41,019 $ 25,618 $ 25,134 $ 19,901 $ 111,672

As at December 31, 2010 $ 40,568 $ 26,703 $ 26,530 $ 21,388 $ 115,189

As at December 31, 2011 $ 48,325 $ 35,967 $ 40,507 $ 35,084 $ 159,883

The Company did not receive any compensation from third parties that is included in net income in 2011 and/or 2010 for items of property

and equipment that were impaired, lost or given up.



123


12 GoodwillThe following table details a reconciliation of the carrying amount of the Company’s goodwill:

FROM OTHER ACTIVITIES

ICISERVICES AND

PACKAGES O&M TOTAL

Balance at January 1, 2010 $ 203,786 $ 296,201 $ 20,875 $ 520,862

Goodwill arising from acquisitions completed in the year – 28,576 – 28,576

Net foreign currency exchange differences – (7,410) – (7,410)

Balance at December 31, 2010 203,786 317,367 20,875 542,028

Goodwill arising from acquisitions completed in the year – 101,357 4,296 105,653Net foreign currency exchange differences – (8,210) – (8,210)

Balance at December 31, 2011 $ 203,786 $ 410,514 $ 25,171 $ 639,471

At the Date of Transition, the amount of goodwill was tested for impairment. The forecast at the Date of Transition showed that there was

no impairment. As at October 31, 2011 and 2010, the Company assessed the recoverable amount of goodwill and determined that there

was no impairment.

For the purpose of annual impairment testing and as at Date of Transition, goodwill is allocated to the following CGU or groups of CGU,

which are the units expected to benefi t from the synergies of the business combinations in which the goodwill arises.

CGU OR GROUP OF CGUDECEMBER 31

2011DECEMBER 31

2010JANUARY 1

2010

AltaLink $ 203,786 $ 203,786 $ 203,786

Services and Packages–Europe 137,402 77,249 78,151

Services and Packages–Brazil 77,118 84,905 82,857

Services and Packages–Other 195,994 155,213 135,193

O&M 25,171 20,875 20,875

$ 639,471 $ 542,028 $ 520,862

The recoverable amounts of the CGU or groups of CGU were determined based on value in use calculations, covering a fi ve-year forecast

for all CGU or groups of CGU, followed by a terminal value based on extrapolation of expected future cash fl ows.

13 Non-Current Financial Assets

DECEMBER 31 2011

DECEMBER 31 2010

JANUARY 1 2010

From ICIReceivables under service concession arrangements $ 239,113 $ 219,646 $ 190,599

Third party deposits of AltaLink 95,285 48,965 62,842

Restricted cash 6,098 6,098 5,937

Other 26,373 20,142 6,138

366,869 294,851 265,516


Non-current fi nancial assets $ 412,258 $ 313,295 $ 285,728

Certain third parties of AltaLink contribute their share of capital project costs in advance of construction and provide advance funding for future

operating and maintenance costs of assets constructed with third party-contributed funds. Third party deposits of AltaLink are recognized

as non-current fi nancial assets with corresponding other non-current fi nancial liabilities (see Note 18).



124


14 Other Non-Current Assets

DECEMBER 31 2011

DECEMBER 31 2010

JANUARY 1 2010

From ICIIntangible assets of AltaLink $ 104,949 $ 84,965 $ 42,085

Other 10,089 2,460 337

115,038 87,425 42,422


Other non-current assets $ 153,521 $ 125,607 $ 73,974

Intangible assets of AltaLink include mainly land rights. The amortization rate applied to land rights was 2.00% for the year ended

December 31, 2011 (2010: 2.85%), while the amortization rates applied by AltaLink to its other intangible assets ranged from 12.38% to

24.32% (2010: from 12.95% to 25.64%). Intangible assets under construction are not amortized until they are available for use. An amount

of $18.8 million as at December 31, 2011 (December 31, 2010: $3.1 million and January 1, 2010: $nil) of the intangible assets was not

being amortized.

15 Other Current Financial Liabilities

DECEMBER 31 2011

DECEMBER 31 2010

JANUARY 1 2010

Commitments to invest in ICI accounted for by the equity and cost methods (Note 5D) $ 159,078 $ 214,678 $ 105,600

Retentions on supplier contracts 103,605 77,322 104,482

Balance of purchase price payable relating to acquisition of businesses 20,631 25,356 19,529

Derivative fi nancial instruments used for cash fl ow hedges — unfavourable fair value 7,717 7,593 10,472

Other current fi nancial liabilities $ 291,031 $ 324,949 $ 240,083

16 Other Current Liabilities

DECEMBER 31 2011

DECEMBER 31 2010

JANUARY 1 2010

Income taxes and other taxes payable $ 113,946 $ 62,876 $ 73,991

Cash-settled share-based payment arrangement liabilities (Note 21C) 37,743 34,230 47,766

Other current liabilities $ 151,689 $ 97,106 $ 121,757



125


17 Short-Term Debt and Long-Term DebtA) RECOURSE REVOLVING CREDIT FACILITIES

The Company has access to committed long-term revolving lines of credit with banks, totalling $590.0 million, upon which it may either issue

letters of credit, or borrow at variable rates not exceeding the prime rate plus 0.00% (2010: 0.20%). As at December 31, 2011, $145.9 million

of these lines of credit remained unused, while the balance of $444.1 million was exclusively used for the issuance of letters of credit.

In addition, the Company has other lines of credit specifi cally available for the issuance of letters of credit. All the above-mentioned lines

of credit are unsecured and subject to negative pledge clauses.

B) RECOURSE LONG-TERM DEBT

DECEMBER 31 2011

DECEMBER 31 2010

JANUARY 1 2010

Recourse (to the general credit of the Company)Debentures, 7.70%, fully repaid at face value of $105.0 million in 2010 $ – $ – $ 104,874

Debentures, 6.19%, due in July 2019 with a face value of $350.0 million repayable in full

at maturity 348,369 348,204 348,048

Both the 2010 and 2019 debentures described are unsecured and subject to negative

pledge clauses.

Total recourse long-term debt 348,369 348,204 452,922

Less: current portion – – 104,874

Recourse long-term debt $ 348,369 $ 348,204 $ 348,048

C) NON-RECOURSE DEBT FROM ICI (UNSECURED OR SECURED ONLY BY ICI’S SPECIFIC ASSETS)

DECEMBER 31

2011DECEMBER 31

2010JANUARY 1

2010

AltaLinkSenior Debt, 4.46% to 5.43%, due from 2013 to 2041, secured by a fi rst fl oating charge

security interest on AltaLink L.P.’s assets. $ 1,219,244 $ 945,211 $ 671,543

Unsecured Debt, 5.02%, due in 2012, 10.50%, due in 2015, and 5.21%, due in 2016 392,994 437,200 436,469

Unsecured credit facility of $300 million (December 31, 2010: $150 million and

January 1, 2010: $10 million) under which AltaLink may borrow at prime rate and

bankers’ acceptances, maturing in 2014 104,500 34,964 –

Unsecured Commercial Paper and bank credit facility 18,981 – 47,982

The unsecured commercial paper is supported by a $850 million (December 31, 2010:

$550 million and January 1, 2010: $400 million) bank credit facility under which

AltaLink may also borrow at prime rate and bankers’ acceptances, maturing in 2013

and ranking equally with the Senior Debt. At December 31, 2011 and 2010, drawdowns

under the bank credit facility were $nil (January 1, 2010: $nil).

Other 433 707 983

Okanagan Lake Concession5.415% credit facility, due in 2033, secured by all assets of Okanagan Lake Concession,

including a pledge by SNC-Lavalin of its units in Okanagan Lake Concession as well as

an assignment of the concession’s future revenues. 141,324 149,704 153,021

Other 11,282 – –

Total non-recourse long-term debt from ICI 1,888,758 1,567,786 1,309,998

Less: short-term debt and current portion of long-term debt 327,381 38,762 51,596

Non-recourse long-term debt from ICI $ 1,561,377 $ 1,529,024 $ 1,258,402



126


17 Short-Term Debt and Long-Term Debt (continued)

D) REPAYMENT OF PRINCIPAL OF SHORT-TERM DEBT AND LONG-TERM DEBT

The future principal payments of SNC-Lavalin’s recourse and non-recourse short-term and long-term debt are summarized below and

reconciled to their net carrying amount:

AT DECEMBER 31, 2011 RECOURSENON-RECOURSE

FROM ICI TOTAL

2012 $ – $ 327,381 $ 327,381

2013 – 340,171 340,171

2014 – 3,876 3,876

2015 – 49,098 49,098

2016 – 154,332 154,332

Thereafter 350,000 1,026,230 1,376,230

Total $ 350,000 $ 1,901,088 $ 2,251,088

Net unamortized deferred fi nancing costs and unamortized discounts (1,631) (12,330) (13,961)

Net carrying amount of short-term debt and long-term debt $ 348,369 $ 1,888,758 $ 2,237,127

18 Other Non-Current Financial Liabilities

DECEMBER 31 2011

DECEMBER 31 2010

JANUARY 1 2010

Third party deposits of AltaLink $ 95,285 $ 48,965 $ 62,842

Other 35,459 27,432 18,855

Other non-current fi nancial liabilities $ 130,744 $ 76,397 $ 81,697

Certain third parties of AltaLink contribute their share of capital project costs in advance of construction and provide advance funding for future

operating and maintenance costs of assets constructed with third party-contributed funds. Third party deposits of AltaLink are recognized

as non-current fi nancial assets (see Note 13) with corresponding other non-current fi nancial liabilities.

19 Provisions

PENSION AND OTHER POST-

EMPLOYMENT BENEFITS OTHER TOTAL

Balance at January 1, 2011 $ 50,753 $ 126,334 $ 177,087

Additional provisions recognized in the year 24,625 72,146 96,771

Amounts used during the year (9,507) (44,001) (53,508)

Unused amounts reversed during the year – (19,675) (19,675)

Actuarial losses recognized in equity 16,033 – 16,033

Unwinding of discount and effect of changes in discount rates 6,919 1,207 8,126

Balance at December 31, 2011 $ 88,823 $ 136,011 $ 224,834

(1) Other provisions include mainly litigations, forecasted losses on certain contracts and warranty provisions.

(1)



127


20 Other Non-Current LiabilitiesOther non-current liabilities manly include contributions received by AltaLink from third parties used to fi nance certain capital construction

costs which are released into revenues over the lives of the related assets. Other non-current liabilities also include funds provided by the

Alberta Utilities Commission to AltaLink to pay for salvage costs, which are released into revenues when the associated costs are incurred.

DECEMBER 31 2011

DECEMBER 31 2010

JANUARY 1 2010

Third party contributions of AltaLink $ 310,498 $ 247,919 $ 195,071

Funds for salvage costs of AltaLink 170,596 174,960 173,283

Other 5,123 9,304 10,121

Other non-current liabilities $ 486,217 $ 432,183 $ 378,475

21 Share Capital A) AUTHORIZED

The Company is authorized to issue an unlimited number of common shares, an unlimited number of fi rst preferred shares and an unlimited

number of second preferred shares.

The Board of Directors is authorized to issue such preferred shares in one or more series and to establish the number of shares in each series

and the conditions attaching thereto, prior to their issue.

The share capital issued and outstanding of the Company consists only of fully paid common shares without nominal value. All common

shares are equally eligible to receive dividends, subject to the prior rights of the holders of preferred shares. Each common share carries one

vote at the shareholders’ meeting of the Company.

Subject to the prior rights of the holders of preferred shares, upon the liquidation or dissolution of the Company or any other distribution of

its assets among its shareholders for the purpose of winding-up its affairs, all the Company’s assets available for payment or distribution to

the holders of the common shares are paid or distributed equally, share for share, to the holders of such common shares.

B) STOCK OPTION PLANS

The main features of the stock option plans under which stock options were outstanding at December 31, 2011 are summarized below:

2011, 2009 AND 2007 STOCK OPTION PLANS 2004 STOCK OPTION PLAN

Grant date Sixth trading day following the approval by

the Company’s Board of Directors

Corresponds to the date of approval by the

Company’s Board of Directors

Exercise price of stock options The greater of: i) the average closing price

for the fi ve trading days preceding the

grant date and ii) the closing price on the

fi rst trading day immediately preceding the

grant date

Closing price on the fi rst trading day

immediately preceding the grant date

Vesting of stock options Graded vesting in three equal tranches:

two years, three years and four years,

respectively, after the grant date

Full vesting two years after the grant date

Expiry of stock options Five years after the grant date Six years after the grant date

Other provisions In the event of cessation of employment,

except in the event of death or if the

optionee is eligible to retire, unvested

options are cancelled immediately and

vested options remain exercisable for a

specifi ed period not exceeding 30 days.

In the event of death or if the optionee is

eligible to retire, both vested and unvested

options continue to run their normal course

In the event of death or if the optionee is

eligible to retire, the vesting of the options

continues in accordance with the plan, but

the life of the option is limited to a period of

two years following such event. All options

are cancelled immediately upon other

cessations of employment



128


The table below presents the changes in the number of options outstanding in 2011 and 2010:

2011 2010

NUMBER OF OPTIONS

WEIGHTED AVERAGE

EXERCISE PRICE (IN DOLLARS)

NUMBER OF OPTIONS

WEIGHTED AVERAGE


Options outstanding at beginning of year 5,126,117 $ 40.61 5,073,954 $ 35.57

Granted (1) 1,119,200 $ 54.06 1,110,500 $ 52.45

Exercised (2) (820,216) $ 32.84 (902,465) $ 26.98

Forfeited (67,586) $ 44.21 (155,872) $ 39.84

Options outstanding at end of year 5,357,515 $ 44.57 5,126,117 $ 40.61

(1) The weighted average fair value of stock options granted was $15.04 in 2011 ($15.50 in 2010).

(2) The weighted average market price of the Company’s common shares upon the exercise of stock options was $53.56 in 2011 ($52.63 in 2010).

The table below summarizes information regarding the stock options outstanding and exercisable as at December 31, 2011.

OPTIONS OUTSTANDING OPTIONS EXERCISABLE

RANGE OF EXERCISE PRICESSTOCK

OPTION PLAN YEAR OF GRANTNUMBER

OUTSTANDING

WEIGHTED AVERAGE

REMAINING OPTIONS’ TERM

(MONTHS)

WEIGHTED AVERAGE


NUMBER EXERCISABLE

WEIGHTED AVERAGE


$29.20 to $32.50 2004 2006 131,500 3 $ 30.24 131,500 $ 30.24

$37.64 to $42.36 2007 2007 688,450 5 $ 37.74 688,450 $ 37.74

$37.17 to $55.10 2007 2008 1,099,368 15 $ 46.23 696,834 $ 46.23

$31.59 2007 2009 914,826 26 $ 31.59 261,735 $ 31.59

$37.53 2009 2009 337,421 28 $ 37.53 104,022 $ 37.53

$52.40 to $57.07 2009 2010 1,074,250 39 $ 52.45 – $ –

$51.55 to $54.07 2011 2011 1,111,700 52 $ 54.06 – $ –

5,357,515 29 $ 44.57 1,882,541 $ 39.49

As at December 31, 2011, 1,188,300 stock options remained available for future grants under the 2011 stock option plan (December 31, 2010:

548,516 stock options and January 1, 2010: 1,629,891 stock options remained available under the 2009 stock option plan), while no stock

options remain available for future grants under the 2009, 2007 and the 2004 stock option plans.

The following table presents the weighted average assumptions used to determine the stock option compensation cost, using the Black-Scholes

option pricing model, for the year ended December 31:

2011 2010

Risk-free interest rate 2.15% 2.47%

Expected stock price volatility 34.78% 36.64%

Expected option life 4 years 4 years

Expected dividend yield 1.00% 1.00%

The underlying expected volatility was determined by reference to historical data.

C) CASH-SETTLED SHARE-BASED PAYMENT ARRANGEMENTS

As at December 31, 2011, the Company had four cash-settled share-based payment compensation plans for executives, namely 2009

PSU plan, 2009 DSU plan, PSU plan and RSU plan, which was introduced in 2010. As at December 31, 2011, the Company also had a cash-settled

share-based payment compensation plan, DSU plan, for members of the Board of Directors of SNC-Lavalin Group Inc.

21 Share Capital (continued)



129


The terms and conditions of the executive plans are summarized below:

2009 PSU PLAN 2009 DSU PLAN / PSU PLAN RSU PLAN

Grant date Date of approval by the Company’s

Board of Directors

Date of approval by the Company’s

Board of Directors

Date of approval by the Company’s

Board of Directors

Number of units Subject to performance conditions,

the number of units granted shall

be adjusted depending on the

three-year cumulative annualized

growth of earnings per share, to

determine the number of units to

which all participants receiving the

award will be entitled to, if any

Determined at grant date, without

any further changes

Determined at grant date, without

any further changes

Vesting of units Units vest in full at the end of the

third calendar year following the

grant date

Units vest at a rate of 20% per year

following the grant date

Units vest in full three years

following their grant date

Payment or conversion At the option of the participant,

upon vesting, units are redeemable

for cash by the Company within

ninety days following the

completion of the vesting period or

are converted as vested 2009 DSU

Units are redeemable for cash by

the Company within thirty days

following the fi rst year anniversary

of a participant’s cessation

of employment

Units are redeemable for cash

by the Company within ninety

business days following the

completion of the vesting period

Redemption price Average closing price per share on

the Toronto Stock Exchange at the

vesting date and the four trading

days preceding such date

Average closing price per share on

the Toronto Stock Exchange on the

fi rst year anniversary of cessation

of employment and the last trading

day on the Toronto Stock Exchange

of each of the 12 weeks preceding

that date

Average closing price per share on

the Toronto Stock Exchange on

the fi ve trading days preceding the

vesting date

Forfeiture If a participant terminates his

employment voluntarily for reasons

other than death or retirement or

if a participant is terminated for

cause before the end of the vesting

period, the units expire immediately

on the date of termination with no

payment being made

If a participant terminates his







payment being made

If a participant terminates his







payment being made

Other provisions The units vest immediately in the

event of death or if a participant

is eligible to retire, with payment

being made within ninety business

days following the end of the third

calendar year from the grant date

The units vest immediately in the

event of death or if a participant

is retiring, with payment being

made on the date of the fi rst

year anniversary following

the participant’s last day

of employment

In the event of death or retirement

of a participant before the end of

the vesting period, the units vest

on a pro rata basis, with payment

being made within ninety business

days following the end of the

original vesting period

(1) The PSU plan has the same terms and conditions as the 2009 DSU plan, except that under certain conditions the vesting was immediate allowing the participant

to receive 50% of the current year’s grant as a cash payment. No units are available for future grants under the PSU plan since January 1, 2010.

The terms and conditions of the DSU plan are as follows: units are issued to Board Members of SNC-Lavalin Group Inc. at the end of each

quarter. Each member is required to participate in the DSU plan by deferring at least 25% of their annual retainer. An additional number

of units is also granted annually as determined by the Corporate Governance Committee of SNC-Lavalin Group Inc. All units issued vest

immediately. When a member ceases to be a member of the Board of Directors, units are redeemed immediately in cash.

(1)




130


The table below presents the number of granted share units and the weighted average fair value per granted share unit for the years ended

December 31, 2011 and 2010:

2011 2010

NUMBER OF GRANTED

SHARE UNITS

WEIGHTED AVERAGE FAIR

VALUE PER SHARE UNIT

(IN DOLLARS)

NUMBER OF GRANTED

SHARE UNITS

WEIGHTED AVERAGE FAIR

VALUE PER SHARE UNIT

(IN DOLLARS)

2009 PSU plan 35,734 $ 55.00 31,322 $ 52.40

2009 DSU plan 36,516 $ 54.98 34,027 $ 52.40

RSU plan 91,678 $ 55.07 84,507 $ 52.86

DSU plan 24,717 $ 52.85 22,037 $ 48.82

The tables below present the changes in the number of outstanding share units in 2011 and 2010:

2011

NUMBER OF 2009 PSU

NUMBER OF 2009 DSU NUMBER OF RSU NUMBER OF PSU NUMBER OF DSU

Share units outstanding at beginning of year 31,322 34,027 81,125 341,816 101,128Granted 35,734 36,516 91,678 – 24,717Exercised – – (4,119) – –Forfeited – – (6,186) – –

Share units outstanding at end of year 67,056 70,543 162,498 341,816 125,845

2010

NUMBER OF 2009 PSU

NUMBER OF 2009 DSU NUMBER OF RSU NUMBER OF PSU NUMBER OF DSU

Share units outstanding at beginning of year – – – 800,136 84,589

Granted 31,322 34,027 84,507 – 22,037

Exercised – – – (458,320) (5,498)

Forfeited – – (3,382) – –

Share units outstanding at end of year 31,322 34,027 81,125 341,816 101,128

The Company has a fi nancial arrangement with an investment grade fi nancial institution to limit its exposure to the variability of the units

caused by fl uctuations in its share price. This fi nancial arrangement includes a fi nancial instrument, which fl uctuates in accordance with

the movement in the Company’s share price, and is required to be classifi ed as held for trading. As such, it is measured at fair value on the

consolidated statement of fi nancial position under “Other current fi nancial assets”, while the cash-settled share-based payment arrangement

liabilities are recorded in “Other current liabilities”. Gains and losses from the remeasurement of the fi nancial instrument offset most of the

related losses and gains from the fair value remeasurement of the cash-settled share-based payment arrangement liabilities. The fi nancing

arrangement is adjusted as needed to refl ect new awards and/or settlements of units.

The compensation expense, net of the loss of $5.6 million from the remeasurement of the cash-settled share-based payment arrangement

asset which offsets the gain of $5.2 million from the remeasurement of the cash-settled share-based payment arrangement liabilities in 2011

(2010: gain of $3.7 million which offsets the loss of $3.4 million), was $8.9 million for the year ended December 31, 2011 (2010: $5.5 million).

The total intrinsic value of the cash-settled share-based payment arrangement liabilities for which the participant’s right to cash vested was

$31.7 million as at December 31, 2011, $30.5 million as at December 31, 2010 and $47.8 million as at January 1, 2010.




131


D) REDEMPTION OF SHARES

In 2011, the Board of Directors authorized the renewal of its normal course issuer bid to purchase for cancellation, on the open market, up

to 3.0 million (2010: 3.0 million) common shares within a one-year period. The renewal of the Company’s normal course issuer bid requires

annual approval by the Board of Directors and the Toronto Stock Exchange. The redemptions of shares in 2011 and 2010 were as follows:

2011 2010

Redeemed and cancelled:

Portion allocated to share capital $ 2,472 $ 2,537

Portion allocated to retained earnings 41,799 45,406

$ 44,271 $ 47,943

Number of shares redeemed and cancelled 819,400 901,600

Average redemption price per share ($) $ 54.03 $ 53.18

E) WEIGHTED AVERAGE NUMBER OF OUTSTANDING SHARES — BASIC AND DILUTED

The weighted average number of outstanding shares in 2011 and 2010 used to calculate the basic and diluted earnings per share were as follows:

AT DECEMBER 31 (IN THOUSANDS) 2011 2010

Weighted average number of outstanding shares — basic 150,897 151,020

Dilutive effect of stock options 1,043 1,257

Weighted average number of outstanding shares — diluted 151,940 152,277

In 2011, 2,186,950 outstanding stock options have not been included in the computation of diluted earnings per share because they were

anti-dilutive (2010: 1,095,250 outstanding stock options).

F) DIVIDENDS

During the year ended December 31, 2011, the Company recognized as distributions to its equity shareholders dividends of $126.8 million

or $0.84 per share (2010: $102.7 million or $0.68 per share).

22 Other Components of EquityThe Company has the following elements, net of income tax, within its other components of equity at December 31, 2011, December 31, 2010

and January 1, 2010:

DECEMBER 312011

DECEMBER 312010

JANUARY 1 2010

Exchange differences on translating foreign operations $ (33,028) $ (21,077) $ –

Available-for-sale fi nancial assets 1,538 1,317 11,215

Cash fl ow hedges (24,375) (15,920) (1,136)

Share of other comprehensive loss of investments accounted for by the equity method (59,948) (31,800) (14,114)

Other components of equity $ (115,813) $ (67,480) $ (4,035)




132


> Exchange differences on translating foreign operations component represents exchange differences relating to the translation from

the functional currencies of the Company’s foreign operations into Canadian dollars. On disposal of a foreign operation, the cumulative

translation differences are reclassifi ed to net income as part of the gain or loss on disposal.

> Available-for-sale fi nancial assets component arises upon the revaluation of available-for-sale fi nancial assets. When a revalued fi nancial

asset is sold, the portion of the component that relates to that fi nancial asset, and is effectively realized, is recognized in net income.

When a revaluated fi nancial asset is impaired, the portion of the component that relates to that fi nancial asset is recognized in net income.

> Cash fl ow hedges component represents hedging gains and losses recognized on the effective portion of cash fl ow hedges. The cumulative

deferred gain or loss on the hedge is recognized in net income when the hedged transaction impacts net income, or is included as a basis

adjustment to the non-fi nancial hedged item, consistent with the applicable accounting policy.

> Share of other comprehensive income (loss) of investments accounted for by the equity method component represents the Company’s

proportionate share of the other comprehensive income (loss) from its investments accounted for by the equity method.

The following table provides a reconciliation of each element of other components of equity for the years ended December 31, 2011 and 2010:


Exchange differences on translating foreign operations:

Balance at beginning of year $ (21,077) $ –

Current year losses (11,951) (21,077)

Balance at end of year (33,028) (21,077)

Available-for-sale fi nancial assets:

Balance at beginning of year 1,317 11,215

Current year gains 1,395 18,111

Income tax expense relating to current year gains (151) (1,884)

Reclassifi cation to net income (1,183) (29,567)

Income tax expense relating to amounts reclassifi ed to net income 160 3,442

Balance at end of year 1,538 1,317

Cash fl ow hedges:

Balance at beginning of year (15,920) (1,136)

Current year gains (losses) (7,618) 38,519

Income tax benefi t (expense) relating to current year gains (losses) 2,632 (18,743)

Reclassifi cation to net income (4,241) (54,927)

Income tax expense relating to amounts reclassifi ed to net income 3,540 20,367

Balance at end of year before the acquisition of non-controlling interests of AltaLink (21,607) (15,920)

Portion of cash fl ow hedges attributable to non-controlling interests of AltaLink reallocated to equity

attributable to SNC-Lavalin shareholders (3,690) –

Income tax benefi t related to the reallocated portion of cash fl ows hedges of AltaLink 922 –

Balance at end of year after the acquisition of non-controlling interests of AltaLink (24,375) (15,920)

Share of other comprehensive income (loss) of investments accounted for by the equity method:

Balance at beginning of year (31,800) (14,114)

Current year share (49,738) (34,178)

Income tax benefi t relating to current year share 16,156 11,236

Reclassifi cation to net income 6,875 6,928

Income tax benefi t relating to amounts reclassifi ed to net income (1,441) (1,672)

Balance at end of year (59,948) (31,800)

Other components of equity $ (115,813) $ (67,480)

22 Other Components of Equity (continued)



133


The Company expects that approximately $13.1 million of the accumulated net unrealized loss on cash fl ow hedges at December 31, 2011

will be reclassifi ed in net income in the next 12 months, offsetting unrealized gains on the corresponding underlying hedged items.

ACTUARIAL GAINS AND LOSSES RECOGNIZED IN OTHER COMPREHENSIVE INCOME

Actuarial gains and losses recognized in other comprehensive income relating to defi ned benefi t pension plans and other post-employment

benefi ts were as follows:


BEFORE TAXINCOME TAX

BENEFIT NET OF TAX BEFORE TAXINCOME TAX

BENEFIT (EXPENSE) NET OF TAX

Cumulative amount at January 1 $ (1,442) $ 359 $ (1,083) $ – $ – $ –

Recognized during the year:

Defi ned benefi t pension plans (15,358) 4,117 (11,240) (2,204) 544 (1,660)

Other post-employment benefi ts (675) 169 (507) 762 (185) 577

(16,033) 4,286 (11,747) (1,442) 359 (1,083)

Cumulative amount at December 31 $ (17,475) $ 4,645 $ (12,830) $ (1,442) $ 359 $ (1,083)

The actuarial gains and losses on defi ned benefi t plans are recognized in other comprehensive income and are not reclassifi ed to net income

in subsequent periods. The cumulative amount of actuarial gains and losses is included in retained earnings.

23 Net Financial Expenses


FROM ICIFROM OTHER


ACTIVITIES TOTAL

Interest revenues $ (7,139) $ (10,158) $ (17,297) $ (105) $ (6,646) $ (6,751)

Interest on debt:

Recourse – 21,879 21,879 – 27,754 27,754

Non-recourse:

AltaLink 87,862 – 87,862 71,829 – 71,829

Other 7,947 – 7,947 8,609 – 8,609

Other (1) 11,061 3,759 14,820 4,761 4,873 9,634

Net fi nancial expenses $ 99,731 $ 15,480 $ 115,211 $ 85,094 $ 25,981 $ 111,075

(1) In 2011, other net fi nancial expenses from ICI include a loss of $5.0 million before taxes from the acquisition of a subsidiary’s debenture related to the AltaLink

transaction (Note 5A).

24 Selling, General and Administrative Expenses


Selling costs $ 191,282 $ 168,199

General and administrative expenses 463,409 413,500

Selling, general and administrative expenses $ 654,691 $ 581,699

22 Other Components of Equity (continued)



134


25 Supplementary Cash Flow InformationThe following table presents the items included in the net change in non-cash working capital related to operating activities presented in the

statements of cash fl ows, for the year ended December 31:

2011 2010

Decrease (increase) in trade receivables $ 69,674 $ (241,840)

Decrease (increase) in contracts in progress 59,384 (135,748)

Decrease (increase) in other current fi nancial assets (98,480) 6,972

Increase in other current assets (16,793) (2,970)

Increase in trade payables 151,221 19,985

Increase (decrease) in downpayments on contracts (75,024) 29,690

Increase in deferred revenues 223,617 224,260

Increase (decrease) in other current fi nancial liabilities 24,557 (22,045)

Increase (decrease) in other current liabilities 3,599 (67,784)

Net change in non-cash working capital items $ 341,755 $ (189,480)

26 Income TaxesA) DEFERRED INCOME TAX ASSET AND DEFERRED INCOME TAX LIABILITY

Deferred income taxes arising from temporary differences and unused tax losses can be summarized as follows:

JANUARY 1 2011

RECOGNIZED IN OTHER

COMPREHENSIVE INCOME

RECOGNIZED IN BUSINESS

COMBINATIONS AND UPON

ACQUISITION OF NON-CONTROLLING

INTERESTS OF ALTALINK

RECOGNIZED IN NET INCOME

EXCHANGE DIFFERENCES AND

OTHER CHARGESDECEMBER 31

2011

Current:

Retentions on client contracts $ (9,479) $ – $ (2) $ (22,614) $ – $ (32,095)Contracts in progress (14,639) – (332) (12,714) – (27,685)Retentions on supplier contracts 14,384 – – 8,043 – 22,427Accrued employee compensation 4,528 – – 2,044 – 6,572Current liabilities 50,119 – 10 9,204 56 59,389Other 1,248 – – (885) – 363

Non-current:

Property and equipment, and goodwill (41,434) – (10,396) (28,469) 8,282 (72,017)Non-current fi nancial assets (6,473) – – (703) – (7,176)Provisions (54,171) – – (4,100) (4,001) (62,272)ICI accounted for by the equity or

cost methods 2,819 14,716 – (29,654) (45) (12,164)Pension plans and other

post-employment benefi ts 11,224 4,286 2,553 (1,822) (6) 16,235Other (6,414) 6,180 488 2,704 518 3,476

Unused tax losses 54,846 – 16 14,370 (4,337) 64,895

Deferred income tax asset (liability), net $ 6,558 $ 25,182 $ (7,663) $ (64,596) $ 467 $ (40,052)

Presented on the statement of fi nancial position as follows:

Deferred income tax asset $ 158,419 – – – – $ 161,364

Deferred income tax liability $ 151,861 – – – – $ 201,416



135


Deferred income taxes for the comparative period 2010 can be summarized as follows:

JANUARY 1 2010

RECOGNIZED IN OTHER

COMPREHENSIVE INCOME

RECOGNIZED IN BUSINESS

COMBINATIONSRECOGNIZED IN

NET INCOME

EXCHANGE DIFFERENCES AND

OTHER CHARGESDECEMBER 31

2010

Current:

Retentions on client contracts $ (1,410) $ – $ – $ (8,069) $ – $ (9,479)

Contracts in progress (12,056) – – (2,583) – (14,639)

Retentions on supplier contracts 15,777 – – (1,393) – 14,384

Accrued employee compensation 7,612 – – (3,084) – 4,528

Current liabilities 44,946 37 4,982 154 50,119

Other 2,463 – – (1,215) – 1,248

Non-current:

Property and equipment, and goodwill (23,960) – – (14,812) (2,662) (41,434)

Non-current fi nancial assets (6,311) – – (162) – (6,473)

Provisions (29,104) – (22) (26,367) 1,322 (54,171)

ICI accounted for by the equity or

cost methods (12,811) 9,565 – 5,996 69 2,819

Pension plans and other

post-employment benefi ts 12,492 359 – (1,627) – 11,224

Other (6,520) 3,181 – (2,796) (279) (6,414)

Unused tax losses 76,304 – – (22,203) 745 54,846

Deferred income tax asset, net $ 67,422 $ 13,105 $ 15 $ (73,333) $ (651) $ 6,558

Presented on the statement of fi nancial position as follows:

Deferred income tax asset $ 139,265 – – – – $ 158,419

Deferred income tax liability $ 71,843 – – – – $ 151,861

At December 31, 2011, the Company had $250.1 million of non-capital tax losses carried-forward that expire in varying amounts from 2012

to 2031. A deferred income tax asset of $64.9 million has been recognized on $218.4 million of these losses. The deferred income tax assets

are recognized only to the extent that it is probable that taxable income will be available against which the unused tax losses can be utilized.

A deferred income tax liability has not been recognized on temporary differences of $884.6 millions (2010: $776.3 million) associated with

investments in subsidiaries, associates and interests in joint ventures, as the Company controls the timing of the reversal and it is probable

that the temporary differences will not reverse in the foreseeable future.

26 Income Taxes (continued)



136


B) INCOME TAX EXPENSE

The relationship between the expected tax expense based on Canadian effective tax rate of SNC-Lavalin at 27.7% (2010: 29.4%) and the

reported tax expense in net income can be reconciled as follows, also showing major components of tax expense:


AMOUNT % AMOUNT %

Income before income tax expense $ 482,234 $ 608,203

Canadian tax rate for SNC-Lavalin 27.7 29.4

Expected income tax expense $ 133,690 $ 178,990

Increase (decrease) resulting from:

Effect of differences of foreign tax rates compared to Canadian rates (13,941) (2.9) (44,811) (7.3)

Net income not affected by tax (50) – 3,888 0.6

Non-taxable income from certain ICI accounted for by the equity or

cost methods (27,549) (5.7) (26,892) (4.4)

Other permanent differences for tax purposes 9,593 2.0 13,111 2.2

Effect of income tax rate changes on deferred income tax asset and

deferred income tax liability 1,323 0.3 (2,886) (0.5)

Non-taxable capital gain on dispositions of assets and ICI – – (6,646) (1.1)

Other (8,174) (1.7) 6,060 1.0

Income tax expense at effective tax rate $ 94,892 19.7 $ 120,814 19.9

The effective income tax rate in 2011 is in line with 2010.

SNC-Lavalin’s income tax expense was comprised of the following:


Current income tax expense $ 30,296 $ 47,481

Deferred income tax expense 64,596 73,333

Income tax expense $ 94,892 $ 120,814

26 Income Taxes (continued)



137


27 Financial InstrumentsA) CLASSIFICATION AND FAIR VALUE OF FINANCIAL INSTRUMENTS

The following tables present the carrying value of fi nancial assets held by SNC-Lavalin at December 31, 2011, December 31, 2010 and

January 1, 2010 by category and classifi cation, with the corresponding fair value, when available:

AT DECEMBER 31 2011

CARRYING VALUE OF FINANCIAL ASSETS BY CATEGORY

HELD FOR TRADING

AVAILABLE- FOR-SALE

LOANS AND RECEIVABLES

DERIVATIVES USED FOR CASH

FLOW HEDGES TOTAL FAIR VALUE

Cash and cash equivalents $ 1,231,049 $ – $ – $ – $ 1,231,049 $ 1,231,049Restricted cash 39,354 – – – 39,354 39,354Trade receivables – – 1,155,544 – 1,155,544 1,155,544Other current fi nancial assets:

Cash-settled share-based payment

arrangement asset 39,671 – – – 39,671 39,671Derivative fi nancial instruments – – – 42,960 42,960 42,960Other current fi nancial assets – – 313,921 – 313,921 313,921

ICI accounted for by the cost method:

At cost (1) – 226,362 – – 226,362 SeeAt amortized cost – – 66,879 – 66,879 66,879

Non-current fi nancial assets:

Restricted cash 6,098 – – – 6,098 6,098Other:

At fair value – 13,505 – – 13,505 13,505 At cost/amortized cost 95,285 – 297,370 – 392,655 403,722

Total $ 1,411,457 $ 239,867 $ 1,833,714 $ 42,960 $ 3,527,998

AT DECEMBER 31 2010


HELD FOR TRADING

AVAILABLE-FOR-SALE




Cash and cash equivalents $ 1,235,085 $ – $ – $ – $ 1,235,085 $ 1,235,085

Restricted cash 39,369 – – – 39,369 39,369

Trade receivables – – 1,273,509 – 1,273,509 1,273,509

Other current fi nancial assets:


arrangement asset 34,544 – – – 34,544 34,544

Derivative fi nancial instruments – – – 37,793 37,793 37,793

Other current fi nancial assets – – 217,917 – 217,917 217,917


At cost (1) – 179,228 – – 179,228 See

At amortized cost – – 55,192 – 55,192 55,192


Restricted cash 6,098 – – – 6,098 6,098

Other:

At fair value – 13,664 – – 13,664 13,664

At cost/amortized cost 48,965 – 244,568 – 293,533 279,760

Total $ 1,364,061 $ 192,892 $ 1,791,186 $ 37,793 $ 3,385,932

(1) These available-for-sale fi nancial assets represent equity instruments that do not have a quoted market price in an active market.

(1)

(1)



138


AT JANUARY 1 2010


HELD FOR TRADING

AVAILABLE-FOR-SALE




Cash and cash equivalents $ 1,191,398 $ – $ – $ – $ 1,191,398 $ 1,191,398

Restricted cash 31,377 – – – 31,377 31,377

Trade receivables – – 1,042,421 – 1,042,421 1,042,421

Other current fi nancial assets:


arrangement asset 47,766 – – – 47,766 47,766

Derivative fi nancial instruments – – – 26,448 26,448 26,448

Other current fi nancial assets – – 205,591 – 205,591 205,591


At fair value – 148,054 – – 148,054 148,054

At cost (1) – 139,589 – – 139,589 See

At amortized cost – – 43,588 – 43,588 43,588


Restricted cash 5,937 – – – 5,937 5,937

Other:

At fair value – 15,376 – 3,759 19,135 19,135

At cost/amortized cost 62,842 – 197,814 – 260,656 236,830

Total $ 1,339,320 $ 303,019 $ 1,489,414 $ 30,207 $ 3,161,960

(1) These available-for-sale fi nancial assets represent equity instruments that do not have a quoted market price in an active market.

The following tables present the carrying value of SNC-Lavalin’s fi nancial liabilities at December 31, 2011, December 31, 2010 and

January 1, 2010 by category and classifi cation, with the corresponding fair value, when available:

AT DECEMBER 31 2011

CARRYING VALUE OF FINANCIAL LIABILITIES BY CATEGORY


FLOW HEDGES

OTHER FINANCIAL

LIABILITIES TOTAL FAIR VALUE

Trade payables $ – $ 1,520,395 $ 1,520,395 $ 1,520,395Other current fi nancial liabilities:

Derivative fi nancial instruments 7,717 – 7,717 7,717Other current fi nancial liabilities – 283,314 283,314 283,314

Downpayments on contracts – 316,714 316,714 316,714Short-term debt and long-term debt (2):

Recourse – 348,369 348,369 411,079Non-recourse from ICI – 1,888,758 1,888,758 2,101,628

Other non-current fi nancial liabilities 8,056 122,688 130,744 130,744

Total $ 15,773 $ 4,480,238 $ 4,496,011

(2) The fair value of short-term debt and long-term debt classifi ed in the “other fi nancial liabilities” category was determined using public quotations or the discounted

cash fl ows method in accordance with current fi nancing arrangements. The discount rates used correspond to prevailing market rates offered to SNC-Lavalin

or to the ICI, depending on which entity has issued the debt instrument, for debt with the same terms and conditions.

(1)

27 Financial Instruments (continued)



139


AT DECEMBER 31 2010



FLOW HEDGES

OTHER FINANCIAL


Trade payables $ – $ 1,274,658 $ 1,274,658 $ 1,274,658

Other current fi nancial liabilities:

Derivative fi nancial instruments 7,593 – 7,593 7,593

Other current fi nancial liabilities – 317,356 317,356 317,356

Downpayments on contracts – 422,930 422,930 422,930

Short-term debt and long-term debt (1):

Recourse – 348,204 348,204 387,730

Non-recourse from ICI – 1,567,786 1,567,786 1,675,962

Other non-current fi nancial liabilities – 76,397 76,397 76,397

Total $ 7,593 $ 4,007,331 $ 4,104,924

AT JANUARY 1 2010



FLOW HEDGES

OTHER FINANCIAL


Trade payables $ – $ 1,294,752 $ 1,294,752 $ 1,294,752

Other current fi nancial liabilities:

Derivative fi nancial instruments 10,472 – 10,472 10,472

Other current fi nancial liabilities – 229,611 229,611 229,611

Downpayments on contracts – 397,329 397,329 397,329

Short-term debt and long-term debt (1):

Recourse – 452,922 452,922 481,005

Non-recourse from ICI – 1,309,998 1,309,998 1,350,826

Other non-current fi nancial liabilities – 81,697 81,697 81,697

Total $ 10,472 $ 3,766,309 $ 3,776,781

(1) The fair value of short-term debt and long-term debt classifi ed in the “other fi nancial liabilities” category was determined using public quotations or the discounted

cash fl ows method in accordance with current fi nancing arrangements. The discount rates used correspond to prevailing market rates offered to SNC-Lavalin

or to the ICI, depending on which entity has issued the debt instrument, for debt with the same terms and conditions.

FAIR VALUE OF FINANCIAL INSTRUMENTSThe methodology used to measure the Company’s fi nancial instruments accounted for at fair value is determined based on the following hierarchy:

LEVEL BASIS FOR DETERMINATION OF FAIR VALUE FINANCIAL INSTRUMENTS

Level 1 Quoted prices in active markets for identical assets

or liabilities

Available-for-sale equity investments accounted for at

fair value

Level 2 Inputs other than quoted prices included in Level 1 that

are directly or indirectly observable for the asset

or liability

Cash and cash equivalents, restricted cash, derivatives

used for cash fl ow hedges, as well as cash-settled

share-based payment arrangement asset (included in

other current fi nancial assets)

Level 3 Inputs for the asset or liability that are not based on

observable market data

None




140


B) NATURE AND EXTENT OF RISKS ARISING FROM FINANCIAL INSTRUMENTS AND RELATED RISK MANAGEMENT

NATURE OF RISK DESCRIPTION

Credit risk Risk that SNC-Lavalin will incur a fi nancial loss if the other party to a fi nancial instrument fails to discharge an

obligation. The maximum exposure to credit risk for SNC-Lavalin at the end of a given period usually corresponds to

the carrying amount of its fi nancial assets exposed to such risk

Liquidity risk Possibility that SNC-Lavalin will encounter diffi culties in meeting the obligations associated with its fi nancial liabilities

Market risk Variability in the fair value or future cash fl ows of a fi nancial instrument caused by a change in market prices in items

such as currency rates, interest rates and equity prices

CREDIT RISKFor SNC-Lavalin, credit risk arises from:

i) Cash and cash equivalents, and restricted cash, which are invested in liquid and high-grade fi nancial instruments, based on SNC-Lavalin’s

investment policy.

ii) Derivative fi nancial instruments used for hedging purposes with a favourable fair value and the cash-settled share-based payment

arrangement asset, which contain an inherent credit risk relating to default on obligations by the counterparty. This credit risk is reduced

by entering into such contracts with high-grade fi nancial institutions, which are expected to satisfy their obligations under the contracts.

iii) Trade receivables, as detailed in Note 8. A given client may represent a material portion of SNC-Lavalin’s consolidated revenues in any

given year due to the size of a particular project and the progress accomplished on such project; however, the exposure to credit risk

is generally limited due to the large number of clients comprising SNC-Lavalin’s revenue base, and their dispersion across different

industry segments and geographic areas. Furthermore, SNC-Lavalin endeavours to structure positive cash fl ow arrangements on its

projects to reduce the underlying credit risk.

The Company’s objective is to reduce credit risk by ensuring collection of its trade receivables on a timely basis. The Company internally

allocates imputed interest to provide an incentive to project managers to collect trade receivables, as uncollected balances result in

an internal cost for the related project and, as such, impacts the profi tability of the project, which is used to determine a manager’s

compensation, and of the associated operating segment.

iv) Other current fi nancial assets, as detailed in Note 9, and non-current fi nancial assets, as detailed in Note 13.

v) The fi nancial assets classifi ed as “Loans and Receivables” included in “ICI accounted for by the equity or cost methods”, which consist

mainly of a loan to the Ambatovy’s Project Operator (Note 5D).

vi) The fi nancial guarantees on the Ambatovy project disclosed in Note 5D .

LIQUIDITY RISKSNC-Lavalin monitors its liquidity risk arising from fi nancial instruments on an ongoing basis by ensuring that it has access to suffi cient

resources to meet its obligations.

As part of its liquidity analysis, the Company calculates what it refers to as freehold cash, which represents the amount of cash and cash

equivalents that is not committed for its operations and not committed for investments in ICI. Furthermore, if needed, SNC-Lavalin has access

to committed lines of credit with banks.

As presented in Note 5, SNC-Lavalin’s consolidated statement of fi nancial position included approximately $2,736.8 million at December 31, 2011

(December 31, 2010: $2,209.1 million and January 1, 2010: $1,911.8 million) of liabilities from ICI that are accounted for by the full consolidation

method. These liabilities, which are non-recourse to the Company, are to be repaid by the ICI and are secured by the respective concession’s

assets, including $492.9 million of fi nancial assets at December 31, 2011 (December 31, 2010: $361.8 million and January 1, 2010: $322.2 million),

and by SNC-Lavalin’s shares or units in such concession investments. As such, the actual book value at risk for SNC-Lavalin, assuming its

ICI accounted for by the full consolidation method were unable to meet their obligations, corresponds to the carrying amount invested in

these entities, which totalled $721.9 million at December 31, 2011 (December 31, 2010: $441.4 million and January 1, 2010: $316.1 million).

SNC-Lavalin’s future principal payments on its short-term debt and long-term debt are presented in Note 17.




141


MARKET RISK

I) CURRENCY RISK

SNC-Lavalin’s foreign currency risk arises from arrangements in currencies other than its reporting currency and from the net assets of its

foreign operations.

Foreign currency risk is managed by the Company by matching, when possible, the cash receipts in a foreign currency and the cash disbursements

in the same foreign currency, for each revenue-generating project in which foreign currencies are involved. Derivative fi nancial instruments

with banks (i.e., forward foreign exchange contracts) are also used to hedge the cash fl ows in foreign currencies.

The following table summarizes the major forward foreign exchange contracts that were outstanding, for which SNC-Lavalin has committed

to buy or sell foreign currencies:

AT DECEMBER 31, 2011 AT DECEMBER 31, 2010 AT JANUARY 1, 2010

BUY SELL MATURITY BUY SELL MATURITY BUY SELL MATURITY

CA$ 471,149 US$ 456,234 2012-2016 CA$ 181,642 US$ 172,856 2011-2015 CA$ 290,643 US$ 264,634 2010-2013

CA$ 533,003 € 375,781 2012-2015 CA$ 530,946 € 375,608 2011-2015 CA$ 368,559 € 241,171 2010-2013

US$ 61,806 CA$ 63,829 2012-2013 US$ 27,961 CA$ 28,756 2011-2012 US$ 27,787 CA$ 29,499 2010-2011

US$ 21,457 € 15,698 2012 US$ 37,098 € 28,689 2011 US$ 50,924 € 37,474 2010

€ 19,793 US$ 26,761 2012-2013 € 9,756 US$ 13,368 2011 € 23,639 US$ 32,777 2010

€ 26,223 CA$ 37,066 2012-2013 € 20,487 CA$ 30,454 2011-2013 € 19,304 CA$ 29,112 2010-2012

As at December 31, 2011, the forward foreign exchange contracts used for hedging purposes by the Company had a net favourable fair value

of $35.2 million (December 31, 2010: $30.2 million and January 1, 2010: $16.0 million). The major forward foreign exchange contracts that

were outstanding at that date were to either buy or sell foreign currencies against the Canadian dollar, or to either buy or sell the US dollar

against the Euro.

SENSITIVITY ANALYSISCHANGE IN FOREIGN EXCHANGES RATES ESTIMATED IMPACT ON OTHER COMPONENTS OF EQUITY

10% increase in the Canadian dollar for all forward foreign exchange

contracts involving Canadian dollars combined with a 10% increase in

the US dollar for all forward foreign exchange contracts involving the

US dollar against the Euro

“Other components of equity” would have been a cumulative loss

of $79.7 million, compared to a cumulative loss of $115.8 million

reported at December 31, 2011

10% decrease in the Canadian dollar for all forward foreign exchange

contracts involving Canadian dollars combined with a 10% decrease in

the US dollar for all forward foreign exchange contracts involving the

US dollar against the Euro

“Other components of equity” would have been a cumulative loss

of $151.9 million, compared to a cumulative loss of $115.8 million

reported at December 31, 2011

(1) Assuming all other variables remain the same.

(2) No material impact on the Company’s net income as all forward foreign exchange contracts entered into by the Company are used for hedging purposes and

the hedging relationships are highly effective.

Investments made in foreign operations are usually not hedged against foreign currency fl uctuations. The exchange gains or losses on the

net equity investment of these operations are refl ected in the “Other components of equity” account, as part of the exchange differences

on translating foreign operations.

(1) (2)




142


II) INTEREST RATE RISK

Cash and cash equivalents, and restricted cash, usually involve limited interest rate risk due to their short-term nature.

NON-RECOURSE SHORT-TERM DEBT AND LONG-TERM DEBT FROM ICI

Unlike Services, Packages and O&M activities, ICI are often capital intensive due to the ownership of infrastructure assets that are fi nanced

mainly with project-specifi c debt, which is non-recourse to the general credit of the Company. These investments usually reduce their

exposure to interest rate risk by entering into fi xed-rate fi nancing arrangements or by hedging the variability of interest rates through

derivative fi nancial instruments. Fixing the interest rates gives the ICI stable and predictable fi nancing cash outfl ows, which are usually

structured to match the expected timing of their cash infl ows. As a result, the changes in interest rates do not have a signifi cant impact on

SNC-Lavalin’s consolidated net income.

RECOURSE LONG-TERM DEBT FROM OTHER ACTIVITIES

SNC-Lavalin’s recourse long-term debt bears interest at a fi xed rate and is measured at amortized cost, therefore, the Company’s net income

is not exposed to a change in interest rates on these fi nancial liabilities.

III) EQUITY PRICE RISK

SNC-Lavalin limits its exposure arising from the cash-settled share-based payment arrangements caused by fl uctuations in its share price,

through a fi nancing arrangement with a high-grade fi nancial institution described in Note 21C.

C) LETTERS OF CREDIT

Under certain circumstances, SNC-Lavalin provides bank letters of credit as collateral for the fulfi llment of contractual obligations, including

guarantees for performance, advance payments, contractual retentions and bid bonds. Certain letters of credit decrease in relation to

the percentage of completion of projects. As at December 31, 2011, SNC-Lavalin had outstanding letters of credit of $1,907.9 million

(December 31, 2010: $2,005.6 million and January 1, 2010: $1,652.1 million).

28 Capital ManagementSNC-Lavalin’s main objective when managing its capital is to maintain an adequate balance between: i) having suffi cient capital for fi nancing

net asset positions, maintaining satisfactory bank lines of credit and capacity to absorb project net retained risks, while at the same time,

ii) optimizing return on average equity attributable to SNC-Lavalin shareholders.

Maintaining suffi cient capital and access to satisfactory bank lines of credit is key to the Company’s activities, as it demonstrates the

Company’s fi nancial strength and its ability to meet its performance guarantees on multiple projects, and allows the Company to provide

letters of credit as collateral for the fulfi llment of its contractual obligations. Maintaining suffi cient capital is also a key fi nancial indicator

that allows the Company to maintain its investment grade credit rating, which results in, among other things, having access to fi nancing

arrangements at a competitive cost.

The Company defi nes its capital as its equity attributable to SNC-Lavalin shareholders excluding other components of equity plus its recourse

debt. The Company excludes other components of equity from its defi nition of capital because this element of equity results mainly from

the accounting treatment of cash fl ow hedges, including the share of comprehensive income of investments accounted for by the equity

method, and is not representative of the way the Company evaluates the management of its foreign currency risk. Accordingly, the other

components of equity are not representative of the Company’s fi nancial position.

The Company does not consider non-recourse debt when monitoring its capital because such debt results from the full consolidation of

certain ICI held by the Company. As such, the lenders of such debt do not have recourse to the general credit of the Company, but rather to

the specifi c assets of the ICI they fi nance. The Company’s investment in its ICI may, however, be at risk if such investments were unable

to repay their non-recourse long-term debt.




143


The Company’s objective remains to maintain a recourse debt-to-capital ratio that would not exceed a ratio of 30:70. The recourse debt-to-capital

ratio, as calculated by the Company, was as follows:

DECEMBER 31 2011

DECEMBER 31 2010

JANUARY 1 2010

Recourse debt $ 348,369 $ 348,204 $ 452,922

Equity attributable to SNC-Lavalin shareholders $ 1,883,068 $ 1,816,778 $ 1,518,208

Less: Other components of equity (115,813) (67,480) (4,035)

Plus: Recourse debt 348,369 348,204 452,922

Capital $ 2,347,250 $ 2,232,462 $ 1,975,165

Recourse debt-to-capital ratio 15:85 16:84 23:77

As a general practice, when managing its capital, the Company repurchases its common shares under its normal course issuer bid mainly

to offset the dilutive effect of stock issuance under its stock option programs. The Company has paid quarterly dividends for 22 consecutive

years and strives to increase its yearly dividend paid per share, which it has done over the past 11 years.

In 2011, the Company complied with all of the covenants related to its debentures and bank credit facilities.

29 Pension Plans and Other Post-Employment Benefi tsA) PENSION PLANS

SNC-Lavalin has defi ned contribution pension plans for which its contributions are recorded as expenses in the year in which they are incurred,

totalling $70.9 million in 2011 (2010: $57.6 million).

SNC-Lavalin also has a number of defi ned benefi t pension plans, which are all closed to new entrants and provide pension benefi ts based

on length of service and fi nal pensionable earnings. An individual actuarial valuation is performed at least every three years for each plan.

For the three principal pension plans, the latest actuarial valuations were performed on December 31, 2010. The measurement date used for

the above benefi t obligation and plan assets is December 31 of each year. All SNC-Lavalin’s defi ned benefi t pension plans are partly funded.

The total cash amount paid by SNC-Lavalin for its pension plans, consisting of contributions to its defi ned contribution and defi ned benefi t

pension plans, was $78.4 million in 2011 (2010: $68.0 million).

28 Capital Management (continued)



144


The following table sets forth the change in pension benefi t obligation and pension plan assets, as well as the funded status of SNC-Lavalin’s

defi ned benefi t pension plans:

AT DECEMBER 31 2011 2010

Change in pension benefi t obligation:Pension benefi t obligation at beginning of year $ 122,677 $ 155,323

Current service cost 1,327 840

Interest cost 6,202 6,415

Benefi ts paid (11,531) (10,297)

Actuarial losses 19,419 3,521

Effect of foreign currency exchange differences (1,479) –

Business acquisitions 66,835 –

Settlement – (33,125)

Pension benefi t obligation at end of year $ 203,450 $ 122,677

Change in pension plan assets:Fair value of pension plan assets at beginning of year $ 85,244 $ 115,038

Expected return on plan assets 6,038 5,698

Actuarial gains 1,984 633

Effect of foreign currency exchange differences (1,283) –

Benefi ts paid (11,531) (10,297)

Employer contributions 7,484 10,361

Business acquisitions 57,769 –

Settlement – (36,189)

Fair value of pension plan assets at end of year $ 145,705 $ 85,244

DECEMBER 31 2011

DECEMBER 31 2010

JANUARY 1 2010

Funded status refl ected in the statement of fi nancial position:Pension plans in defi cit $ 57,745 $ 37,433 $ 40,285

Additional liability due to minimum funding requirements 689 2,766 3,450

Net accrued pension benefi t liability $ 58,434 $ 40,199 $ 43,735

29 Pension Plans and Other Post-Employment Benefi ts (continued)



145


The following table presents the allocation of the major categories of assets of SNC-Lavalin’s defi ned benefi t pension plans:

DECEMBER 31 2011

DECEMBER 31 2010

JANUARY 1 2010

Asset categoryEquity securities 70% 56% 43%

Debt securities 30% 44% 57%

Total 100% 100% 100%

(1) Due to the acquisition of Interfl eet Technology Limited completed by SNC-Lavalin in 2011, the allocation of the major categories of assets of SNC-Lavalin’s

defi ned benefi t pension plans as at December 31, 2011 is not representative of SNC-Lavalin’s asset management policy or of its historical allocation patterns

and is expected to be changed in the future to get closer to SNC-Lavalin’s historical allocation patterns.

The following is a summary of signifi cant weighted average assumptions used in measuring SNC-Lavalin’s accrued pension benefi t obligation

and net benefi t pension costs:

DECEMBER 31 2011

DECEMBER 31 2010

JANUARY 1 2010

Accrued pension benefi t obligationDiscount rate 3.82% 4.57% 4.64%

Rate of compensation increase 4.06% 4.61% 4.62%


Net benefi t pension costsDiscount rate 4.62% 4.64%

Expected long-term rate of return on plan assets 6.85% 6.30%

Rate of compensation increase 4.04% 4.62%

SNC-Lavalin’s assessment of the expected long-term rate of return on plan assets is based on the historical return trends and advisors’

predictions on the future return of each asset category.

SNC-Lavalin’s net defi ned benefi t pension costs recognized in net income was comprised of:


Current service cost $ 1,327 $ 840

Interest cost on benefi t obligation 6,202 6,415

Expected actuarial return on plan assets (6,038) (5,698)

Settlement loss – 3,064

Other – 74

Net defi ned benefi t pension cost recognized in the year $ 1,491 $ 4,695

SNC-Lavalin expects to make contributions of $7.6 million in 2012 to its defi ned benefi t pension plans.

B) OTHER POST-EMPLOYMENT BENEFITS

As at December 31, 2011, the obligation for other post-employment benefi ts amounted to $30.4 million (December 31, 2010: $10.6 million

and January 1, 2010: $11.3 million), of which $19.1 million relate to businesses acquired in 2011.

(1)

(1)

29 Pension Plans and Other Post-Employment Benefi ts (continued)



146


30 Contingent LiabilitiesIn the normal conduct of operations, there are pending claims by and against SNC-Lavalin. Litigation is subject to many uncertainties, and

the outcome of individual matters is not predictable with assurance. In the opinion of management, based on the advice and information

provided by its legal counsel, fi nal determination of these litigations will not materially affect the Company’s consolidated fi nancial position

or results of operations.

BANGLADESH INVESTIGATION

As previously announced on September 6, 2011, the Royal Canadian Mounted Police (the “RCMP”) is investigating the Company’s involvement in

projects in Bangladesh and certain countries in Africa. The Company understands that the investigation is primarily focused on its involvement

in a past submission as the Owner’s Engineer for the Bangladesh government where the Company would have supervised the contractor

responsible for the overall project. The Company’s involvement in this matter is also being investigated by the World Bank. The Company

understands that the RCMP investigation into this matter is ongoing but no charges have been laid against the Company. The Company also

understands that the World Bank investigation is ongoing but no sanctions or proceedings have been initiated against the Company. Due to

the nature of these investigations, it is not possible to predict the respective outcomes with any certainty or potential losses, if any, for the

Company in connection therewith.

31 Operating Lease ArrangementsSNC-Lavalin’s minimum lease payments for annual basic rental under long-term operating leases, mainly for offi ce space, amounted to

$437.7 million in 2011. The annual minimum lease payments are as follows: 2012 — $89.5 million; 2013 — $76.7 million; 2014 — $68.7 million;

2015 — $59.5 million; 2016 — $43.3 million and thereafter — $100.0 million.

32 RemunerationA) EMPLOYEE REMUNERATION

Expenses recognized for employee benefi ts, including expenses recognized for key management remuneration and directors’ fees, are analyzed

as follows:


Short-term benefi ts $ 2,037,228 $ 1,777,272

Share-based payments 24,349 18,259

Pension plans and other post-employment benefi ts 3,773 6,036

$ 2,065,350 $ 1,801,567

B) KEY MANAGEMENT REMUNERATION AND DIRECTORS’ FEES

Expenses recognized for key management remuneration and directors’ fees, representing approximately 103 people (2010: 93 people)

and comprising all members of the Company’s Management Committee and all directors of SNC-Lavalin Group Inc.’s Board of Directors,

are detailed as follows:


Short-term benefi ts $ 32,290 $ 33,324

Share-based payments 13,761 11,778

Pension plans and other post-employment benefi ts 3,505 4,854

$ 49,556 $ 49,956



147


33 Related Party TransactionsIn the normal course of its operations, SNC-Lavalin enters into transactions with certain of its ICI. Investments in which SNC-Lavalin has

signifi cant infl uence or joint control, which are accounted for by the equity method, are considered related parties, consistent with IFRS.

Consistent with IFRS, intragroup profi ts generated from revenues with ICI accounted for by the equity or full consolidation methods are

eliminated in the period they occur, except when such profi ts are deemed to have been realized by the ICI. Profi ts generated from transactions

with ICI accounted for by the cost method are not eliminated, in accordance with IFRS.

The accounting treatment of intragroup profi ts is summarized below:

ICI ACCOUNTING METHOD ACCOUNTING TREATMENT OF INTRAGROUP PROFITS

AltaLink Full consolidation method Not eliminated upon consolidation in the period they occur, as they are

considered realized by AltaLink via legislation applied by an independent

governmental regulatory body.

ICI accounted for

under IFRIC 12

Full consolidation method Not eliminated upon consolidation in the period they occur, as they are

considered realized by the ICI through the contractual agreement with

its client.

Equity method Not eliminated upon consolidation in the period they occur, as they are

considered realized by the ICI through the contractual agreement with

its client.

Others Equity method Eliminated in the period they occur, as a reduction of the underlying

asset and subsequently recognized over the depreciation period of the

corresponding asset.

Cost method Not eliminated, in accordance with IFRS.

For the year ended December 31, 2011, SNC-Lavalin recognized revenues of $559.5 million (2010: $306.3 million) from contracts with ICI

accounted for by the equity method. SNC-Lavalin also recognized income from these ICI, which represents the Company’s share of net

income from these ICI, of $102.8 million for the year ended December 31, 2011 (2010: $76.9 million). Intragroup revenues generated from

transactions with AltaLink, which amounted to $419.6 million for the year ended December 31, 2011 (2010: $263.7 million), were eliminated

upon consolidation, while profi ts from those transactions were not eliminated.

SNC-Lavalin’s trade receivables from these ICI accounted for by the equity method amounted to $43.7 million as at December 31, 2011

(December 31, 2010: $12.0 million and January 1, 2010: $102.8 million). SNC-Lavalin’s other non-current fi nancial assets receivables from

these ICI accounted for by the equity method amounted to $83.0 million as at December 31, 2011 (December 31, 2010: $25.5 million and

January 1, 2010: $nil). SNC-Lavalin’s remaining commitment to invest in these ICI accounted for by the equity method was $129.0 million

at December 31, 2011 (December 31, 2010: $178.6 million and January 1, 2010: $78.3 million).

All of these related party transactions are measured at fair value.



148


34 Subsidiaries, Joint Ventures and AssociatesThe main subsidiaries, jointly controlled entities, jointly controlled operations and associates of the Company at December 31, 2011, in addition

to their jurisdiction of incorporation and the percentage of voting shares benefi cially owned, or controlled, or directed, directly or indirectly

by the Company or the percentage of joint venture interest are set out below:

SUBSIDIARIES % COUNTRY

AltaLink, L.P. 100.0 Canada

Candu Energy Inc. 100.0 Canada

Groupe Qualitas Inc. 100.0 Canada

Groupe Stavibel Inc. 100.0 Canada

Intecsa-Inarsa, S.A. 100.0 Spain

Interfl eet Technology Limited 100.0 United Kingdom

Itansuca Proyectos de Ingenieria S.A. 100.0 Colombia

MDH Engineered Solutions Corp. 100.0 Canada

Marte Engenharia Ltda 100.0 Brazil

Minerconsult Engenharia Ltda 100.0 Brazil

Nexacor Realty Management Inc. 100.0 Canada

Okanagan Lake Concession Limited Partnership 100.0 Canada

Ovation Real Estate Group (Québec) Inc. 100.0 Canada

P.T. SNC-Lavalin TPS 95.0 Indonesia

Rainbow Hospital Partnership 100.0 Canada

S.A. SNC-Lavalin N.V. 100.0 Belgium

SNC-Lavalin (Malaysia) Sdn. Bhd. 100.0 Malaysia

SNC-Lavalin (Shanghai) International Trading Co. Ltd. 100.0 China

SNC-Lavalin Aéroports S.A.S.U. 100.0 France

SNC-Lavalin Algérie EURL 100.0 Algeria

SNC-Lavalin Angola Lda 100.0 Angola

SNC-Lavalin Arabia LLC 100.0 Saudi Arabia

SNC-Lavalin ATP Inc. 100.0 Canada

SNC-Lavalin Australia Pty. Ltd. 100.0 Australia

SNC-Lavalin Chile S.A. 100.0 Chile

SNC-Lavalin Construction (Atlantic) Inc. 100.0 Canada

SNC-Lavalin Construction Inc. 100.0 Canada

SNC-Lavalin Construction (Ontario) Inc. 100.0 Canada

SNC-Lavalin Construction International SAS 100.0 France

SNC-Lavalin Constructors Inc. 100.0 United States

SNC-Lavalin Defence Programs Inc. 100.0 Canada

SNC-Lavalin Dominicana S.A. 100.0 Dominican Republic

SNC-Lavalin Engineering India Private Limited 100.0 India

SNC-Lavalin Engineers & Constructors, Inc. 100.0 United States

SNC-Lavalin Eurasia OOO 100.0 Russia

SNC-Lavalin Europe B.V. 100.0 Netherlands

SNC-Lavalin Europe S.A.S. 100.0 France

SNC-Lavalin Inc. 100.0 Canada

SNC-Lavalin International Inc. 100.0 Canada

SNC-Lavalin International S.A.S. 100.0 France

SNC-Lavalin Nuclear Inc. 100.0 Canada

SNC-Lavalin Operations & Maintenance Inc. 100.0 Canada

SNC-Lavalin Peru S.A. 100.0 Peru

SNC-Lavalin Pharma Inc. 100.0 Canada

SNC-Lavalin Pharma S.A. 100.0 Belgium

SNC-Lavalin Polska Sp. z o.o. 100.0 Poland

SNC-Lavalin Romania S.A. 100.0 Romania

SNC-Lavalin S.A.S. 100.0 France



149


SUBSIDIARIES % COUNTRY

SNC-Lavalin Services Ltd. 100.0 Canada

SNC-Lavalin South Africa (Proprietary) Limited 100.0 South Africa

SNC-Lavalin UK Limited 100.0 United Kingdom

Société d’Exploitation de l’Aéroport de Mayotte S.A.S. 100.0 France

Socodec Venezuela C.A. 100.0 Venezuela

The SNC-Lavalin Corporation 100.0 United States

JOINTLY CONTROLLED ENTITIES % COUNTRY

Infrastructure Concession Investments

407 International Inc. (1) 16.77 Canada

Chinook Roads Partnership 50.0 Canada

Groupe immobilier santé McGill, S.E.N.C. (3) 60.0 Canada

TC Dôme S.A.S. (3) 51.0 France

JOINTLY CONTROLLED OPERATIONS % COUNTRY

SLN-Aecon JV 50.0 Canada

SNC-Lavalin Graham Joint Venture 50.0 Canada

SNC-Lavalin Gulf Contractors LLC 49.0 United Arab Emirates

Société d’expertise et d’ingénierie L.G.L., S.A. 33.33 Haiti

JV Vault 50.0 Canada

ASSOCIATES % COUNTRY

Infrastructure Concession Investments

Astoria Project Partners LLC 21.0 United States

Astoria Project Partners II LLC (2) 18.5 United States

InTransit BC Limited Partnership 33.3 Canada

Malta International Airport p.l.c. (2) 15.5 Malta

Myah Tipaza S.p.A. 25.5 Algeria

Rayalseema Expressway Private Limited 36.9 India

Shariket Kahraba Hadjret En Nouss S.p.A. 26.0 Algeria

Société d’Exploitation de Vatry Europort S.A. (3) 51.1 France

Other

OAO VNIPIneft 48.0 Russia

(1) Although the Company holds less than 20% of the equity shares of 407 International Inc., the Company exercises joint control over this entity based on its

contractual agreements.

(2) Although the Company’s ownership interest in Astoria Project Partners II LLC and in Malta International Airport p.l.c. is less than 20%, the Company exercises

signifi cant infl uence over these entities based on its contractual agreements.

(3) Although the Company’s ownership interest in Groupe immobilier santé McGill, S.E.N.C., TC Dôme S.A.S. and Société d’Exploitation de Vatry Europort S.A. is

more than 50%, the Company does not exercise control over these entities based on its contractual agreements.

34 Subsidiaries, Joint Ventures and Associates (continued)



150


35 First-Time Adoption of IFRSAs stated in Note 2 , these are the Company’s fi rst consolidated fi nancial statements prepared in accordance with International Financial

Reporting Standards (“IFRS”).

In February 2008, the Canadian Accounting Standards Board (“AcSB”) announced the changeover to IFRS for Canadian publicly accountable

enterprises for interim and annual fi nancial statements relating to fi scal years beginning on or after January 1, 2011. In October 2009,

the AcSB reconfi rmed January 1, 2011 as the date of changeover to move fi nancial reporting for Canadian publicly accountable enterprises

to IFRS, as issued by the International Accounting Standards Board (“IASB”). Therefore, the Company’s IFRS accounting policies presented in

Note 2 have been applied in preparing these consolidated fi nancial statements as at and for the year ended December 31, 2011, the opening

consolidated statement of fi nancial position as at January 1, 2010, as well as all comparative information included in these fi nancial

statements. Consequently, January 1, 2010 is the Company’s date of transition (“Date of Transition”) from Canadian generally accepted

accounting principles (“GAAP”) to IFRS.

The current note has been prepared with the objective of explaining to the reader the impact of the Company’s transition from Canadian

GAAP to IFRS, and is structured as follows:

SECTION TITLE OBJECTIVE

35.1 Executive summary Provides an overview of the main accounting differences in the Company’s

accounting policies resulting from the adoption of IFRS

35.2 Effect of IFRS adoption on the

Company’s consolidated

statements of fi nancial position

and equity

Provides a quantitative reconciliation between Canadian GAAP and IFRS

for the Company’s consolidated statements of fi nancial position and equity

as at the Date of Transition and as at December 31, 2010, with detailed

explanations on the reconciling items


Company’s consolidated income

statement

Provides a quantitative reconciliation between Canadian GAAP and IFRS

for the Company’s consolidated income statement for the year ended

December 31, 2010, with detailed explanations on the reconciling items

35.4 Effect of IFRS adoption

on the Company’s

consolidated statement of

comprehensive income

Provides a quantitative reconciliation between Canadian GAAP and IFRS for

the Company’s consolidated statement of comprehensive income for the year

ended December 31, 2010, with detailed explanations of the reconciling items


Company’s consolidated

statements of cash fl ows

Explains the main differences between Canadian GAAP and IFRS for the

Company’s consolidated statements of cash fl ows from January 1, 2010

and thereafter

35.6 Other Explains other IFRS requirements regarding January 1, 2010

35.1 EXECUTIVE SUMMARY

As required by IFRS, the Company has applied IFRS 1, First-time Adoption of International Financial Reporting Standards, (“IFRS 1”) in preparing

its fi rst IFRS consolidated fi nancial statements. The general principle underlying IFRS 1 is that the fi rst IFRS fi nancial statements are to be

prepared as if IFRS had been the framework for the Company’s accounting since its inception (i.e., retrospective application).

While IFRS 1 does not require the restatement of all historical fi nancial statements previous to the Date of Transition (January 1, 2010),

the cumulative differences on net income between Canadian GAAP and IFRS resulting from transactions prior to that date are to be recorded

as adjustments to the opening balance of retained earnings as at January 1, 2010. As the burden of issuers adopting IFRS for the fi rst time

could be signifi cant, IFRS 1 provides for a limited number of mandatory exceptions and of optional exemptions to the general principle

of retrospective application. All issuers adopting IFRS for the fi rst time are required to apply the mandatory exceptions, but they have

a choice to apply or not the optional exemptions. The Company has applied all mandatory exceptions and has applied certain of the optional

exemptions that are detailed in the current note, resulting in the prospective application of IFRS related to these exceptions and exemptions.



151


Upon transition to IFRS, certain of the Company’s accounting policies did not require a change, while others have been changed. The following

table summarizes the main differences between IFRS and Canadian GAAP that impacted the Company’s consolidated fi nancial statements:

IFRS Canadian GAAP

Impact on the Company at the Date

of Transition Future impact on the Company

Retrospective

application

Service Concession Arrangements (IFRIC 12) [Note a in section 35.2]

IFRIC 12 provides guidance on the

accounting for certain qualifying

public-private partnership

arrangements. Under such

arrangements, the concessionaire

accounts for the infrastructure

asset by applying the intangible

asset model, the fi nancial asset

model, or a combination of both.

No equivalent standard. The

accounting treatment is derived

from other relevant standards

based on the arrangement's facts

and circumstances.

The adjustments relating to the

retrospective application of IFRIC 12 were

recorded in the Company's opening

retained earnings at the Date of Transition

to IFRS.

The Company will follow

the guidance of IFRIC

12 to account for its

qualifying public-private

partnership agreements.

Yes

Interests in Joint Ventures (IAS 31) [Note b in section 35.2]

IFRS currently allows accounting

for jointly controlled entities using

either the equity method or the

proportionate consolidation method.

IFRS requires a venturer to account

for its share of the assets, liabilities,

revenues and expenses for jointly

controlled operations and jointly

controlled assets.

Canadian GAAP requires the use

of the proportionate consolidation

method for all types of

joint ventures.

Upon transition to IFRS, the Company

elected to account for its jointly controlled

entities, mainly ICI, using the equity

method. At the Date of Transition, the

adjustment relating to this change in

accounting policy was recorded in the

opening retained earnings of the Company.

This adjustment is related to investments

that had a negative carrying amount.

The Company continues to

account for its share of the

assets, liabilities, revenues

and expenses from its jointly

controlled operations while

the equity method applies to

its jointly controlled entities

(mainly ICI).

Yes

Business Combinations (IFRS 3)

IFRS requires all business

combinations to be accounted for

using the acquisition method. As per

the acquisition method, identifi able

net assets acquired in a business

combination are recorded at "full

fair value", with components of

non-controlling interests in the

acquiree recorded at either: i)

fair value; or ii) non-controlling

interests' proportionate share in

the recognized amounts of the

acquiree's identifi able net assets.

All acquisition-related costs are

recognized as period expenses,

unless they constitute costs

associated with issuing debt or

equity securities.

Under Canadian GAAP, business

acquisitions were accounted for

using the purchase method. As per

the purchase method, identifi able

net assets and goodwill acquired

in a business combination were

recorded at the acquirer's share

of the fair value of the net assets

acquired. Any non-controlling

interest in the acquiree was

recorded at the non-controlling

interest's proportionate share

in the net book value of the

acquiree's identifi able net assets.

All acquisition-related costs were

capitalized in goodwill, unless they

constituted costs associated with

issuing debt or equity securities.

As per the optional exemption in IFRS 1,

an entity may elect not to apply IFRS 3

retrospectively to business combinations

undertaken prior to the Date of Transition.

The Company has elected not to restate

business combinations undertaken prior to

January 1, 2010. However, the Company

applied all of the requirements prescribed

by IFRS 1 to business combinations that

the Company recognized before the Date

of Transition, with no adjustment relating

to business combinations recorded by the

Company on the Date of Transition to IFRS.

All business combinations

undertaken on or after

January 1, 2010 are

accounted for using the

acquisition method.

No

Employee Benefi ts (IAS 19) [Note d.2 in section 35.2]

IFRS allows accounting for

actuarial gains and losses arising

from defi ned benefi t plans

and post-employment benefi t

plans in net income or in other

comprehensive income.

Canadian GAAP requires to account

for recognized actuarial gains or

losses arising from defi ned benefi t

plans and post-employment benefi t

plans in net income.

The optional exemption in IFRS 1 provides

for the recognition of all cumulative

unrecognized actuarial gains and losses

through an adjustment to the opening

balance of retained earnings at the Date of

Transition to IFRS. The Company elected

to apply this exemption and recorded

an adjustment in the amount of the

Canadian GAAP balance of its cumulative

unrecognized net actuarial losses in its

opening retained earnings at the Date

of Transition.

The effect of actuarial gains

and losses arising from

defi ned benefi t plans and

post-employment benefi t

plans will no longer affect net

income under the Company's

accounting policy choice. The

effects of actuarial gains and

losses will be recognized

immediately in equity, rather

than being recognized over a

period of time in net income.

No

35 First-Time Adoption of IFRS (continued)



152


IFRS Canadian GAAP

Impact on the Company at the Date

of Transition Future impact on the Company

Retrospective

application

The Effects of Changes in Foreign Exchange Rates (IAS 21) [Note d.3 in section 35.2]

IFRS does not distinguish between

self-sustaining or integrated foreign

operations. It rather requires all

entities, including foreign operations,

to determine their functional

currency and to translate their

results and fi nancial position into

that functional currency. Then, the

fi nancial statements of foreign

operations with a functional

currency different from the

functional currency of the reporting

entity are translated in the

presentation currency, so that the

foreign operations can be included

in the fi nancial statements of the

reporting entity by consolidation,

proportionate consolidation or

the equity method by using a

method equivalent to the current

rate method.

Canadian GAAP requires self-

sustaining foreign operations to be

translated using the current rate

method and integrated foreign

operations to be translated using

the temporal method.

The optional exemption in IFRS 1 allows an

entity to reset its cumulative translation

differences for all foreign operations

to zero by transferring the balance of

its cumulative translation differences

account, included in the statement of

changes in equity, to its retained earnings

at the Date of Transition to IFRS. The

Company elected to apply this exemption

and transferred to retained earnings

the Canadian GAAP balance included

in other components of equity, under

"exchange differences on translating

foreign operations" account, on the Date of

Transition to IFRS.

Starting January 1, 2010, the

Company applies the IFRS

guidance on foreign currency

on a prospective basis, with no

signifi cant impact expected on

net income.

No

Rate-regulated Activities [Note c.5 in section 35.2]

No specifi c standard for

rate-regulated activities

Canadian GAAP provides guidance

for entities subject to rate

regulation related to the recognition

of their regulatory assets and

regulatory liabilities.

The carrying amount of items of property

and equipment or intangible assets

subject to rate regulation might include

amounts, under Canadian GAAP, that

do not qualify for capitalisation under

IFRS. As per the optional exemption

in IFRS 1 effective for annual periods

beginning on or after January 1, 2011,

an entity may elect to use the Canadian

GAAP carrying amount of such items as

its opening IFRS balance at the Date of

Transition to IFRS if it early adopts this

optional exemption on January 1, 2010.

The Company elected to early adopt this

optional exemption on January 1, 2010

and applied it to the qualifying items of

property and equipment and intangible

assets of AltaLink, its subsidiary involved

with rate-regulated transmission lines

and substations in Alberta, Canada.

AltaLink's qualifying items of property and

equipment and intangible assets subject

to rate regulation are therefore carried

at their Canadian GAAP balance in the

Company's consolidated statement of

fi nancial position at the Date of Transition

to IFRS and thereafter.

Property and equipment and

intangible assets of AltaLink

used in operations subject to

rate regulation constructed

or acquired on or after

January 1, 2010 are accounted

for under applicable relevant

standards of IFRS. No material

impact on AltaLink's net

income is expected following

the transition to IFRS.

No for

property

and

equipment

and

intangible

assets

subject

to rate

regulation

All other assets and liabilities of AltaLink

were subject to the IFRS 1 requirement of

retrospective application, except for those

subject to the mandatory exceptions and

optional exemptions.

Yes for

all other

assets and

liabilities

Financial Instruments: Recognition and Measurement (IAS 39) [Note d.1 in section 35.2]

IFRS requires all available-for-sale

fi nancial assets to be measured at

fair value, unless fair value is not

reliably determinable.

Under Canadian GAAP, unlisted

securities are measured at cost,

even if their fair value could be

reliably determined.

The Company measured its unlisted

securities at fair value on January 1,

2010, unless fair value was not reliably

measurable, and recorded a corresponding

adjustment in its other components of

equity at January 1, 2010.

Subsequent to January 1,

2010, revaluation gains

(losses) on these securities are

recognized in the statement of

comprehensive income.

Yes

Other optional exemptions available under IFRS 1 as well as other accounting standards under which the Company had to elect a method

from available accounting methods are not discussed here as their impact is not material to the Company.




153


35.2 EFFECT OF IFRS ADOPTION ON THE COMPANY’S JANUARY 1, 2010 (“OPENING STATEMENT OF FINANCIAL POSITION”) AND DECEMBER 31, 2010 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(IN THOUSANDS OF CANADIAN DOLLARS) JANUARY 1, 2010

EFFECT OF TRANSITION TO IFRS

CANADIAN GAAP IFRIC 12 IAS 31RECLASSI-FICATIONS OTHER TAX EFFECT IFRS

ASSETS (Note 35.2a) (Note 35.2b) (Note 35.2c) (Note 35.2d)

Current assetsCash and cash equivalents 1,218,225 – (26,827) – – – 1,191,398

Restricted cash 68,185 – (36,808) – – – 31,377

Trade and other receivables 1,480,478 (16,537) (6,588) (414,932) – – 1,042,421

Contracts in progress 479,637 – – – – – 479,637

Contracts in progress from concession

arrangements 33,941 (33,941) – – – – –

Other current fi nancial assets – 1,694 (3,824) 281,935 – – 279,805

Deferred income tax asset 112,557 – – (112,557) – – –

Other current assets – – (56) 132,997 – – 132,941

Total current assets 3,393,023 (48,784) (74,103) (112,557) – – 3,157,579


From ICI 2,217,047 (144,309) (384,747) 37,215 – – 1,725,206

From other activities 113,952 – – – (2,280) – 111,672

ICI accounted for by the equity or cost

methods 469,402 40,097 9,976 43,588 12,800 – 575,863

Goodwill 520,862 – – – – – 520,862

Deferred income tax asset – – (8,555) 112,557 38,775 (3,512) 139,265

Non-current fi nancial assets – 190,599 (52,585) 145,082 2,632 – 285,728

Other non-current assets 491,997 – (271,438) (146,585) – – 73,974

Total assets 7,206,283 37,603 (781,452) 79,300 51,927 (3,512) 6,590,149

See pages 157 to 166 for explanatory notes to the reconciliation above.




154




CANADIAN GAAP IFRIC 12 IAS 31RECLASSI-FICATIONS OTHER TAX EFFECT IFRS

LIABILITIES AND EQUITY (Note 35.2a) (Note 35.2b) (Note 35.2c) (Note 35.2d)

Current liabilitiesTrade and other payables 1,702,034 – (16,975) (390,307) – – 1,294,752

Downpayments on contracts 397,329 – – – – – 397,329

Deferred revenues 505,531 (328) (620) 5,606 – – 510,189

Other current fi nancial liabilities – – 4,094 235,989 – – 240,083

Other current liabilities – – – 121,757 – – 121,757

Current portion of long-term debt:

Recourse 104,874 – – – – – 104,874

Non-recourse from ICI 139,183 – (135,193) 47,606 – – 51,596

Total current liabilities 2,848,951 (328) (148,694) 20,651 – – 2,720,580

Long-term debt:

Recourse 348,048 – – – – – 348,048

Non-recourse from ICI 2,005,485 – (699,477) (47,606) – – 1,258,402

Other non-current fi nancial liabilities – – – 83,225 (1,528) – 81,697

Provisions – – – 109,529 21,882 – 131,411

Other non-current liabilities 464,666 – – (86,191) – – 378,475

Deferred income tax liability 24,408 – 6,654 (308) 38,775 2,314 71,843

Total liabilities 5,691,558 (328) (841,517) 79,300 59,129 2,314 4,990,456

Non-controlling interests 80,033 – – (80,033) – – –

EquityShare capital 397,735 – – – – – 397,735

Contributed surplus 33,473 – – (33,473) – – –

Retained earnings 1,026,790 36,513 63,196 33,473 (31,960) (3,504) 1,124,508

Other components of equity (23,306) – (3,131) – 24,724 (2,322) (4,035)

Equity attributable to SNC-Lavalin

shareholders 1,434,692 36,513 60,065 – (7,236) (5,826) 1,518,208

Non-controlling interests – 1,418 – 80,033 34 – 81,485

Total equity 1,434,692 37,931 60,065 80,033 (7,202) (5,826) 1,599,693

Total liabilities and equity 7,206,283 37,603 (781,452) 79,300 51,927 (3,512) 6,590,149





155


(IN THOUSANDS OF CANADIAN DOLLARS) DECEMBER 31, 2010


CANADIAN GAAP2010

CORRECTION IFRIC 12 IAS 31RECLASSI-FICATIONS OTHER TAX EFFECT IFRS

ASSETS (Note 35.2 e) (Note 35.2a) (Note 35.2b) (Note 35.2c) (Note 35.2d)

Current assetsCash and cash

equivalents 1,288,232 – – (53,147) – – – 1,235,085

Restricted cash 340,063 – – (300,694) – – – 39,369

Trade and other

receivables 1,673,082 – (16,537) (5,960) (377,076) – – 1,273,509

Contracts in progress 624,547 (16,412) – – – – – 608,135

Contracts in progress

from concession

arrangements 167,097 – (82,249) (84,848) – – – –

Other current fi nancial

assets – – 19,115 15,054 255,477 608 – 290,254

Deferred income

tax asset 78,306 – – – (78,306) – – –

Other current assets – – – (1,471) 121,599 – – 120,128

Total current assets 4,171,327 (16,412) (79,671) (431,066) (78,306) 608 – 3,566,480


From ICI 2,588,649 – (141,289) (380,799) 22,548 (16,295) – 2,072,814

From other activities 117,510 – – – – (2,321) – 115,189

ICI accounted for by the

equity or cost methods 386,696 – 61,348 123,712 55,192 – – 626,948

Goodwill 543,642 – – – – (1,614) – 542,028

Deferred income tax asset – – – (6,545) 78,306 91,978 (5,320) 158,419

Non-current fi nancial assets – – 219,646 (356,162) 429,282 20,529 – 313,295

Other non-current assets 795,399 – – (270,282) (399,510) – – 125,607

Total assets 8,603,223 (16,412) 60,034 (1,321,142) 107,512 92,885 (5,320) 7,520,780





156




CANADIAN GAAP2010

CORRECTION IFRIC 12 IAS 31RECLASSI-FICATIONS OTHER TAX EFFECT IFRS

LIABILITIES AND EQUITY (Note 35.2 e) (Note 35.2a) (Note 35.2b) (Note 35.2c) (Note 35.2d)

Current liabilitiesTrade and other payables 1,666,117 – (17) (18,407) (373,035) – – 1,274,658

Downpayments on

contracts 551,862 – – (128,932) – – – 422,930

Deferred revenues 700,279 – (744) 19,782 8,870 – – 728,187

Other current fi nancial

liabilities – – – 129,080 195,869 – – 324,949

Other current liabilities – 1,476 – – 95,630 – – 97,106

Current portion

of long-term debt:

Recourse – – – – – – – –

Non-recourse from ICI 6,651 – – (2,463) 34,574 – – 38,762

Total current liabilities 2,924,909 1,476 (761) (940) (38,092) – – 2,886,592

Long-term debt:

Recourse 348,204 – – – – – – 348,204

Non-recourse from ICI 2,981,448 – – (1,417,850) (34,574) – – 1,529,024

Other non-current fi nancial

liabilities – – – (660) 75,858 1,199 – 76,397

Provisions – – – – 155,543 21,544 – 177,087

Other non-current liabilities 481,148 – – (2,189) (46,776) – – 432,183

Deferred income tax liability 56,493 – – 3,053 (4,447) 91,978 4,784 151,861

Total liabilities 6,792,202 1,476 (761) (1,418,586) 107,512 114,721 4,784 5,601,348

Non-controlling interests 102,595 – – – (102,595) – – –

EquityShare capital 424,935 – – – – – – 424,935

Contributed surplus 42,742 – – – (42,742) – – –

Retained earnings 1,315,692 (17,888) 60,778 100,475 42,742 (32,790) (9,686) 1,459,323

Other components of

equity (74,943) – – (3,031) – 10,912 (418) (67,480)

Equity attributable

to SNC-Lavalin

shareholders 1,708,426 (17,888) 60,778 97,444 – (21,878) (10,104) 1,816,778

Non-controlling interests – – 17 – 102,595 42 – 102,654

Total equity 1,708,426 (17,888) 60,795 97,444 102,595 (21,836) (10,104) 1,919,432

Total liabilities and equity 8,603,223 (16,412) 60,034 (1,321,142) 107,512 92,885 (5,320) 7,520,780





157


RECONCILIATION OF EQUITY

(IN THOUSANDS OF CANADIAN DOLLARS) NOTE JANUARY 1

2010DECEMBER 31

2010

Total shareholders’ equity under Canadian GAAP 1,434,692 1,708,426

Service concession arrangements 35.2 a 37,931 60,795

Jointly controlled entities 35.2 b 60,065 97,444

Reclassifi cation of non-controlling interests to equity 35.2 c.1 80,033 102,595

Measurement of available-for-sale securities 35.2 d.1 15,432 1,620

Defi ned benefi t plans and other post-employment benefi ts 35.2 d.2 (19,366) (18,847)

2010 correction 35.2 e – (16,412)

Other (3,268) (4,609)

Total adjustment to equity, before income taxes 170,827 222,586

Income tax effect of the above (5,826) (11,580)

Total adjustment to equity 165,001 211,006

Total equity under IFRS 1,599,693 1,919,432

35.2 A. SERVICE CONCESSION ARRANGEMENTS (IFRIC 12)Upon transition to IFRS, the Company retrospectively adopted IFRIC Interpretation 12, Service Concession Arrangements, (“IFRIC 12”).

IFRIC 12 provides guidance on the accounting for certain qualifying public-private partnership arrangements, whereby the grantor (i.e., usually

a government):

i) controls or regulates what services the operator (i.e. “the concessionaire”) must provide with the infrastructure, to whom it must

provide them, and at what price; and

ii) controls any signifi cant residual interest in the infrastructure at the end of the term of the arrangement.

Typically, in a public-private service concession arrangement within the scope of IFRIC 12, the underlying infrastructure is used to deliver public

services (e.g., roads, bridges, hospitals, electricity supply plants, etc.) to users of those services. The contractual arrangement between the

government and the concessionaire is referred to as a “concession agreement”, under which the government specifi es the responsibilities of

the concessionaire and governs the basis upon which the concessionaire will be remunerated. The concessionaire is usually responsible for

the construction of the infrastructure, its operation and maintenance and its rehabilitation and is usually paid by the government, the users,

or both. In certain cases, the concessionaire can receive payments from the government during the initial construction phase. At the end of the

term of a concession agreement, the infrastructure is returned to the government, often for no additional consideration. These arrangements

vary greatly in duration, but terms of 20 to 40 years are usual.

Under such concession arrangements, the concessionaire accounts for the infrastructure asset by applying i) the intangible asset model if

the concessionaire bears demand risk through the usage of the infrastructure; ii) the fi nancial asset model if the concessionaire does not

bear such risk; or iii) a combination of both (i.e., bifurcated model) if the concessionaire bears part of such risk.




158


The following Company’s ICI were identifi ed as being within the scope of IFRIC 12:

FINANCIAL ASSET MODEL INTANGIBLE ASSET MODEL BIFURCATED MODEL

ICI existing at January 1, 2010:

InTransit BC Limited Partnership

Okanagan Lake Concession Limited Partnership

Ovation Real Estate Group (Quebec) Inc.

TC Dôme S.A.S.

ICI entered into after January 1, 2010:

Chinook Roads Partnership

Groupe Immobilier Santé McGill

Rainbow Hospital Partnership

Rayalseema Expressway Private Limited

Société d'Exploitation de l'Aéroport de Mayotte S.A.S.

In these concession arrangements, the concessionaire usually subcontracts the EPC and O&M contracts to the Company’s subsidiaries or

joint ventures.

The table below highlights the main characteristics of the Company’s concession arrangements within the scope of IFRIC 12 for which the

fi nancial asset model is applied:

Demand risk The government bears demand risk as the government pays the Company a fi xed monetary

amount, usually conditional on availability and performance conditions, regardless of the usage of

the infrastructure.

Impact on the Company’s consolidated income statement

General principle:The Company accounts for the total consideration as revenue, based on the fair value of each

deliverable activity. Consistent with IFRS, intragroup profi ts generated by the Company’s subsidiaries

or joint ventures acting as a contractor or operator for the concessionaire are not eliminated, resulting

in the Company recognizing revenues and profi t (loss) from all activities provided through the


Construction revenues:The Company recognizes revenues and costs relating to construction of infrastructure in accordance

with IAS 11, Construction Contracts, ("IAS 11") under the same methodology as any other construction

contract and classifi es these revenues as "Packages" activities.

Operations and maintenance revenues:The Company recognizes revenues and costs relating to operation and maintenance of an infrastructure

as any other operation and maintenance contract and classifi es these revenues as "O&M" activities.

Rehabilitation revenues:When rehabilitation activities are considered revenue-generating activities, revenues are recognized in

accordance with IAS 11 under the same methodology as any other similar contract and the Company

classifi es these revenues as "O&M" activities.

Finance income:Finance income generated on fi nancial assets is recognized using the effective interest method and is

classifi ed as revenue from "ICI" activities.

Impact on the Company’s consolidated statement of fi nancial position

Revenues recognized by the Company under the fi nancial asset model are accumulated in “Receivables

under service concession arrangements”, which are included in “Other current fi nancial assets” or

“Non-current fi nancial assets” on the Company’s consolidated statement of fi nancial position. The

balance of these “Receivables under service concession arrangements” is reduced by the payments

received from the government.




159


For concession arrangements accounted for by the intangible asset model, the concessionaire recognizes an intangible asset to the extent

that it receives a right to charge for the usage of the asset.

Borrowing costs, if any, are capitalized as part of the carrying amount of the intangible asset during the construction phase. Capitalization

of borrowing costs ceases when the infrastructure is ready for its intended use.

The intangible asset is amortized over its expected useful life, which is the concession period in a service concession arrangement. Amortization

period begins when the infrastructure is available for use.

The Company’s only concession arrangement accounted for by the intangible asset model is REPL, which is an ICI accounted for by the

equity method.

35.2 B. INTERESTS IN JOINT VENTURES (IAS 31)The Company carries out certain of its activities through joint ventures, which are mainly jointly controlled operations for its Services, Packages

and O&M activities, and jointly controlled entities for its ICI activities.

JOINTLY CONTROLLED OPERATIONS

Under Canadian GAAP, jointly controlled operations were accounted for by the proportionate consolidation method. Under IFRS, the Company

recognizes the assets that it controls, the liabilities and expenses that it incurs, and its share of the income that it earns from the sale of goods

or services by the jointly controlled operations. Therefore, there is no signifi cant impact on the Company’s consolidated fi nancial statements

at the Date of Transition to IFRS or thereafter relating to the accounting of its jointly controlled operations.

JOINTLY CONTROLLED ENTITIES

Under IFRS, interests in jointly controlled entities are to be accounted for using either the equity method or the proportionate consolidation

method. Under Canadian GAAP, such interests were accounted for using the proportionate consolidation method.

To better refl ect the Company’s view of the nature of its jointly controlled entities, which are mainly ICI, the Company elected to use the

equity method upon its transition to IFRS. The use of the equity method for jointly controlled entities provides the reader with a greater

understanding of the Company’s underlying assets, earning base and fi nancial resources as opposed to the proportionate consolidation

method which recognizes the Company’s proportionate share of assets and liabilities that it does not control or for which it has no obligation,

including debt that is non-recourse to the Company.

IMPACT ON THE COMPANY’S CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONS

At the Date of Transition and at December 31, 2010, the Company eliminated its share of proportionately consolidated assets and liabilities

of its interests in jointly controlled entities and recognized its net investment in these entities as “ICI accounted for by the equity or cost

methods” for its jointly controlled entities from ICI.

Under Canadian GAAP, the proportionate method of accounting required the Company to recognize its proportionate share of the jointly

controlled entities’ losses irrespective of the carrying amount of its investment in such jointly controlled entities. As a result, the balance

of interests in jointly controlled entities was negative $60.1 million at January 1, 2010 and $97.5 million at December 31, 2010, mainly due

to Highway 407.

Under IFRS, the equity method requires the Company to stop recognizing its share of the losses of a jointly controlled entity when the

recognition of such losses results in a negative balance for its investment, unless the Company has incurred legal or constructive obligations

or made payments on behalf of the jointly controlled entity. Since the Company did not incur any legal or constructive obligations or did not

make payments on behalf of these jointly controlled entities, the carrying amount of the Company’s investments in these jointly controlled

entities is not negative under IFRS, but is recorded at $nil.

Therefore, the change in accounting policy from the proportionate consolidation method used to account for the Company’s jointly controlled

entities under Canadian GAAP to the equity method which is used to account for the Company’s jointly controlled entities under IFRS was

accounted for on a retrospective basis and resulted in an increase of the Company’s equity of $60.1 million at the Date of Transition (an increase

of $63.2 million in retained earnings and a decrease of $3.1 million in other components of equity) and of $97.5 million at December 31, 2010

(an increase of $100.5 million in retained earnings and a decrease of $3.0 million in other components of equity), mainly from the Company’s

investment in Highway 407.




160


IMPACT ON THE COMPANY’S CONSOLIDATED INCOME STATEMENTS

In regards to the income statement, under Canadian GAAP, the proportionate consolidation method required the Company to consolidate

its proportionate share of the jointly controlled entities’ revenues and expenses on a line-by-line basis.

Under IFRS, the equity method requires the Company to recognize in its income statement its share of net income (loss) of its jointly controlled

entities for the period. Also, under the equity method, distributions receivable from a jointly controlled entity reduce the carrying amount

of the investment recorded by the Company. Where dividends payable by the jointly controlled entity are in excess of the carrying amount of

the investment, the carrying value is reduced to nil, but does not become negative, unless the Company has incurred legal or constructive

obligations or made payments on behalf of the jointly controlled entity. Such excess amount of dividends payable by a jointly controlled

entity is recognized in net income of the Company.

Accordingly, the adjustments to the Company’s consolidated income statement for the year ended December 31, 2010 include: (i) an elimination

of revenues and expenses previously recognized by the Company under the proportionate consolidation method; (ii) a recognition by the

Company of its share of net income (loss) for the year of its jointly controlled entities which investment account shows a positive carrying

amount as at December 31, 2010; and (iii) a recognition by the Company of dividends from its jointly controlled entities where dividends are

in excess of the carrying amount of the investment.

For further details regarding the Company’s jointly controlled entities accounted for by the equity method, refer to Note 5.




161


35.2 C. RECLASSIFICATIONSThe following reclassifi cations were made to the Company’s consolidated statements of fi nancial position at January 1, 2010 and at

December 31, 2010, with the total impact presented under the “Reclassifi cations” column of the “Effect of IFRS adoption on the Company’s

January 1, 2010 (“opening statement of fi nancial position”) and December 31, 2010 consolidated statements of fi nancial position” tables:


RECLASSIFICATIONS

Statement of fi nancial position line itemsNOTE

35.2 C.1NOTE

35.2 C.2NOTE

35.2 C.3NOTE

35.2 C.4NOTE

35.2 C.5NOTE

35.2 C.6 TOTAL

Current assetsTrade and other receivables – (414,932) – – – – (414,932)

Other current fi nancial assets – 281,935 – – – – 281,935

Deferred income tax asset – – (112,557) – – – (112,557)

Other current assets – 132,997 – – – – 132,997

Net impact on current assets – – (112,557) – – – (112,557)

Non-current assetsProperty and equipment:

From ICI – – – 200,675 (163,460) – 37,215


methods – 43,588 – – – – 43,588

Deferred income tax asset – – 112,557 – – – 112,557

Non-current fi nancial assets – 145,082 – – – – 145,082

Other non-current assets – (188,670) – – 42,085 – (146,585)

Net impact on non-current assets – – 112,557 200,675 (121,375) – 191,857

Total impact on assets – – – 200,675 (121,375) – 79,300

Current liabilitiesTrade and other payables – (359,438) – – – (30,869) (390,307)

Deferred revenues – – – 5,606 – – 5,606

Other current fi nancial liabilities – 235,989 – – – – 235,989

Other current liabilities – 121,757 – – – – 121,757


Non-recourse from ICI – 47,606 – – – – 47,606

Net impact on current liabilities – 45,914 – 5,606 – (30,869) 20,651

Non-current liabilitiesLong-term debt

Non-recourse from ICI – (47,606) – – – – (47,606)

Other non-current fi nancial liabilities – 191,580 – – (108,355) – 83,225

Provisions – – – – – 109,529 109,529

Other non-current liabilities – (189,580) – 195,069 (13,020) (78,660) (86,191)

Deferred income tax liability – (308) – – – – (308)

Net impact on non-current liabilities – (45,914) – 195,069 (121,375) 30,869 58,649

Non-controlling interests (80,033) – – – – – (80,033)

EquityContributed surplus (33,473) – – – – – (33,473)

Retained earnings 33,473 – – – – – 33,473

Non-controlling interests 80,033 – – – – – 80,033

80,033 – – – – – 80,033

Total impact on liabilities and equity – – – 200,675 (121,375) – 79,300

Only line items of the Company’s consolidated statement of fi nancial position affected by the reclassifi cations at January 1, 2010 are shown in the table above.




162



RECLASSIFICATIONS


35.2 C.1NOTE

35.2 C.2NOTE

35.2 C.3NOTE

35.2 C.4NOTE

35.2 C.5NOTE

35.2 C.6 TOTAL

Current assetsTrade and other receivables – (377,076) – – – – (377,076)

Other current fi nancial assets – 255,477 – – – – 255,477

Deferred income tax asset – – (78,306) – – – (78,306)

Other current assets – 121,599 – – – – 121,599

Net impact on current assets – – (78,306) – – – (78,306)


From ICI – – – 256,787 (234,239) – 22,548


methods – 55,192 – – – – 55,192

Deferred income tax asset – – 78,306 – – – 78,306

Non-current fi nancial assets – 429,282 – – – – 429,282

Other non-current assets – (484,474) – – 84,964 – (399,510)

Net impact on non-current assets – – 78,306 256,787 (149,275) – 185,818

Total impact on assets – – – 256,787 (149,275) – 107,512

Current liabilitiesTrade and other payables – (291,200) – – – (81,835) (373,035)

Deferred revenues – – – 8,870 – – 8,870

Other current fi nancial liabilities – 195,869 – – – – 195,869

Other current liabilities – 95,630 – – – – 95,630


Non-recourse from ICI – 34,574 – – – – 34,574

Net impact on current liabilities – 34,873 – 8,870 – (81,835) (38,092)

Non-current liabilitiesLong-term debt

Non-recourse from ICI – (34,574) – – – – (34,574)

Other non-current fi nancial liabilities – 160,752 – – (84,894) – 75,858

Provisions – – – – – 155,543 155,543

Other non-current liabilities – (156,604) – 247,917 (64,381) (73,708) (46,776)

Deferred income tax liability – (4,447) – – – – (4,447)

Net impact on non-current liabilities – (34,873) – 247,917 (149,275) 81,835 145,604

Non-controlling interests (102,595) – – – – – (102,595)

EquityContributed surplus (42,742) – – – – – (42,742)

Retained earnings 42,742 – – – – – 42,742

Non-controlling interests 102,595 – – – – – 102,595

102,595 – – – – – 102,595

Total impact on liabilities and equity – – – 256,787 (149,275) – 107,512

Only line items of the Company’s consolidated statement of fi nancial position affected by the reclassifi cations at December 31, 2010 are shown in the table above.




163


35.2 C.1 RECLASSIFICATION OF NON-CONTROLLING INTERESTS AND CONTRIBUTED SURPLUSUnder IFRS, non-controlling interests are presented within equity as they represent the residual interest in the net assets of the subsidiaries and

therefore meet the defi nition of equity as per the Framework for the Preparation and Presentation of Financial Statements. Under Canadian GAAP,

non-controlling interests were presented outside shareholders’ equity. The effect of the change is an increase in equity of $80.0 million at

January 1, 2010 and of $102.6 million at December 31, 2010.

On the Date of Transition, the Company elected to reclassify the amount of contributed surplus relating to the stock option compensation to

retained earnings. The effect of the change is a decrease in contributed surplus and an equivalent increase in retained earnings of $33.5 million

at January 1, 2010 and of $42.7 million at December 31, 2010.

35.2 C.2 RECLASSIFICATION OF FINANCIAL AND NON-FINANCIAL INSTRUMENTSCertain fi gures relating to fi nancial and non-fi nancial instruments have been reclassifi ed to conform to the presentation adopted by the

Company upon transition to IFRS as required by IAS 1, Presentation of Financial Statements, with no impact on the Company’s total assets,

total liabilities or equity.

35.2 C.3 RECLASSIFICATION OF DEFERRED INCOME TAX ASSET AND DEFERRED INCOME TAX LIABILITYUnder Canadian GAAP, when an enterprise segregated its assets and liabilities between current and non-current assets and liabilities,

the current and non-current portions of deferred income tax liabilities and deferred income tax assets were also segregated.

Under IFRS, when an entity classifi es its statement of fi nancial position by presenting current assets and current liabilities separately from

non-current assets and non-current liabilities, it needs to classify deferred income tax assets and deferred income tax liabilities as non-current

assets and non-current liabilities. Therefore, a deferred income tax asset of $112.6 million included in current assets was reclassifi ed to

non-current assets on the Date of Transition (December 31, 2010: $78.3 million).

35.2 C.4 TRANSFERS OF ASSETS FROM CUSTOMERSAltaLink, a subsidiary of the Company, enters into certain transactions whereby it receives cash from customers dedicated to the construction

of transmission lines and substations, which provides these customers with ongoing access to a supply of electricity. Under Canadian GAAP,

there is no specifi c guidance applicable to such agreements and the amount of such cash received by Altalink was presented as a reduction

of the carrying values of the related items of property and equipment in the statement of fi nancial position.

Upon transition to IFRS, the Company retrospectively adopted IFRIC Interpretation 18, Transfers of Assets from Customers, (“IFRIC 18”)

with the effective date of April 29, 2002 (date of inception of AltaLink). IFRIC 18 applies to transactions described above. As per IFRIC 18’s

guidance, when an entity receives a transfer of cash from a customer, it shall assess whether the constructed or acquired item of property,

plant and equipment meets the defi nition of an asset. If the defi nition of an asset is met, the entity recognizes the item of property, plant

and equipment at its cost and recognizes revenue or deferred revenue, as applicable, for the same amount based on the appropriate revenue

recognition policy.

The effect of this change resulted in an increase in property and equipment of $200.7 million at January 1, 2010 (December 31, 2010:

$256.8 million), with an equivalent increase to deferred revenues, of which $5.6 million is in current liabilities and $195.1 million is in other

non-current liabilities (December 31, 2010: $8.9 million and $247.9 million, respectively). This change did not have any impact on the

Company’s retained earnings at January 1, 2010.

The effect of this change also resulted in an increase of revenues and of the depreciation expense by $7.9 million for the year ended

December 31, 2010, with no impact on net income.




164


35.2 C.5 ASSET RETIREMENT OBLIGATION AND RATE-REGULATED ACTIVITIESUnder Canadian GAAP, AltaLink recognized liabilities for future dismantling costs related to both the interim retirement and the fi nal

retirement of transmission facilities. Under IFRS, AltaLink recognizes a reserve for salvage costs liability for forecasted future dismantling

costs associated with the retirement of tangible long-lived assets.

Under IFRS, AltaLink’s asset retirement obligation at January 1, 2010 is reduced from $186.3 million (December 31, 2010: $239.3 million)

to $nil, combined with a decrease of $121.4 million (December 31, 2010: $149.3 million) in property and equipment and an increase of

$64.9 million (December 31, 2010: $90.0 million) in other non-current liabilities.

As mentioned in section 35.1, AltaLink is an entity whose operations are subject to rate regulation. Under Canadian GAAP, it is subject to

accounting for entities subject to rate regulation. Consequently, AltaLink presented certain of its intangible assets, mainly land rights, together

with property and equipment. Under IFRS, such intangible assets are presented as a separate line item in the statement of fi nancial position.

Therefore, the effect of this reclassifi cation is a decrease of property and equipment of $42.1 million at January 1, 2010 (December 31, 2010:

$85.0 million) and an increase in other non-current assets of the same amount.

35.2 C.6 PROVISIONSUnder Canadian GAAP, provisions were included in “trade and other payables” and “other non-current liabilities” in the statement of fi nancial

position. Under IFRS, provisions have to be included in the statement of fi nancial position as a separate line item. Therefore, the effect of this

reclassifi cation is a decrease of trade and other payables of $30.9 million and of other non-current liabilities of $78.7 million at January 1, 2010

(December 31, 2010: $81.8 million and $73.7 million, respectively) and an increase in provisions of the same amount.

35.2 D. OTHER ADJUSTMENTSThe following other adjustments were made to the Company’s consolidated statements of fi nancial position at January 1, 2010 and December 31,

2010, with the total impact presented under the “Other” column of the “Effect of IFRS adoption on the Company’s January 1, 2010 (“opening

statement of fi nancial position”) and December 31, 2010 consolidated statements of fi nancial position” tables:


OTHER ADJUSTMENTS


35.2 D.1NOTE

35.2 D.2NOTE

35.2 D.3 OTHER TOTAL


From other activities – – – (2,280) (2,280)

ICI accounted for by the cost method 12,800 – – – 12,800

Deferred income tax asset – – – 38,775 38,775

Non-current fi nancial assets 2,632 – – – 2,632

Total impact on assets 15,432 – – 36,495 51,927

Non-current liabilitiesOther non-current fi nancial liabilities – (1,528) – – (1,528)

Provisions – 20,894 – 988 21,882

Deferred income tax liability – – – 38,775 38,775

Net impact on non-current liabilities – 19,366 – 39,763 59,129

EquityRetained earnings – (19,400) (9,292) (3,268) (31,960)

Other components of equity 15,432 – 9,292 – 24,724

Non-controlling interests – 34 – – 34

Net impact on equity 15,432 (19,366) – (3,268) (7,202)

Total impact on liabilities and equity 15,432 – – 36,495 51,927

Only line items of the Company’s consolidated statement of fi nancial position affected by the adjustments at January 1, 2010 are shown in the table above.




165



OTHER ADJUSTMENTS


35.2 D.1NOTE

35.2 D.2NOTE

35.2 D.3 OTHER TOTAL

Current assetsOther current fi nancial assets – – – 608 608

Net impact on current assets – – – 608 608


From ICI – – – (16,295) (16,295)

From other activities – – – (2,321) (2,321)

Goodwill – – – (1,614) (1,614)

Deferred income tax asset – – – 91,978 91,978

Non-current fi nancial assets 1,620 – – 18,909 20,529

Net impact on non-current assets 1,620 – – 90,657 92,277

Total impact on assets 1,620 – – 91,265 92,885

Non-current liabilitiesOther non-current fi nancial liabilities – (2,023) – 3,222 1,199

Provisions – 20,870 – 674 21,544

Deferred income tax liability – – – 91,978 91,978

Net impact on non-current liabilities – 18,847 – 95,874 114,721

EquityRetained earnings – (18,889) (9,292) (4,609) (32,790)

Other components of equity 1,620 – 9,292 – 10,912

Non-controlling interests – 42 – – 42

Net impact on equity 1,620 (18,847) – (4,609) (21,836)

Total impact on liabilities and equity 1,620 – – 91,265 92,885

Only line items of the Company’s consolidated statement of fi nancial position affected by the adjustments at December 31, 2010 are shown in the table above.




166


35.2 D.1 MEASUREMENT OF UNLISTED SECURITIESUnder Canadian GAAP, available-for-sale equity securities that are not traded on an active market were measured at cost. Under IFRS, all

available-for-sale fi nancial assets are measured at fair value, unless fair value is not reliably determinable. Upon transition to IFRS, the effect

of the change is an increase in equity of $15.4 million (December 31, 2010: $1.6 million), with an increase to ICI accounted for by the equity or

cost methods of $12.8 million (December 31, 2010: $nil) and to non-current fi nancial assets of $2.6 million (December 31, 2010: $1.6 million).

After the Date of Transition, revaluation gains (losses) on these available-for-sale fi nancial assets that are not traded on an active market

are recognized in the statement of comprehensive income. When these available-for-sale fi nancial assets are disposed of or are determined

to be impaired, the cumulative amount of gains (losses) recognized in the statement of comprehensive income is reclassifi ed from the “other

components of equity” to the income statement.

35.2 D.2 DEFINED BENEFIT PLANS AND OTHER POST-EMPLOYMENT BENEFITSAs mentioned in section 35.1, the Company has elected to apply the optional exemption in IFRS 1 and recognized unamortized net actuarial

losses for all its defi ned benefi t plans in the consolidated statement of fi nancial position, i.e., the full net pension liability is recognized at

January 1, 2010. The Company also applied IFRIC Interpretation 14, The Limit on a Defi ned Benefi t Asset, Minimum Funding Requirements and Their Interaction, (“IFRIC 14”). The total effect of IFRS 1 and IFRIC 14 is a decrease in equity at the Date of Transition of $19.4 million

(December 31, 2010: $18.8 million).

Net actuarial gains and losses arising after the Date of Transition for all the Company’s defi ned benefi t plans are recognized in other

comprehensive income. Net actuarial losses recognized in other comprehensive income amounted to $1.4 million for the year ended

December 31, 2010. The reversal of the Canadian GAAP amount relating to the amortization of actuarial losses in net income represented

$1.1 million for the year ended December 31, 2010.

35.2 D.3 CUMULATIVE TRANSLATION DIFFERENCE FROM FOREIGN OPERATIONSAs mentioned in section 35.1, the Company elected to reclassify cumulative translation losses included in other components of equity, under

“exchange differences on translating foreign operations” account, to retained earnings. The gain or loss on a subsequent disposal of any foreign

operation excludes translation differences that arose before the Date of Transition.

Upon transition to IFRS, the effect of the change is a decrease to retained earnings and an increase to other components of equity of $9.3 million

at January 1, 2010 and at December 31, 2010.

35.2 E. 2010 CORRECTIONThe 2010 correction relates to $20 million in payments made in 2010 under what is presumed to be an agency agreement, that were

charged and documented to a construction project to which they did not relate (see Note 36A). Because these payments were documented

to a construction project to which they did not relate and that there is no direct and conclusive evidence on the use and purpose of these

payments or the nature of services rendered in connection therewith, the Company concluded that these payments should be treated as

period expenses (i.e., not generating revenues) for accounting purposes.

The 2010 payments accounted for as period expenses, net of the effect resulting from an increased forecasted gross margin following the

exclusion of the payments from the project costs on the project that the payments were originally allocated to, resulted in a reduction in net

income of $17.9 million in 2010 ($0.12 per share on both a basic and diluted basis). The Company decided to correct its prior period comparative

fi nancial information under its fi rst issuance of annual audited consolidated fi nancial statements prepared in accordance with IFRS.




167


35.3 EFFECT OF IFRS ADOPTION ON THE COMPANY’S CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2010


YEAR ENDED DECEMBER 31, 2010 (IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT PER SHARE AMOUNTS)

CANADIAN GAAP

2010 CORRECTION IFRIC 12 IAS 31

RECLASS I-FICATIONS AND

CONSOLIDATION ELIMINATION OTHER IFRS

Revenues by activity: (Note 35.2 e) (Note 35.2a) (Note 35.2b) (Note 35.3a)

Services 2,051,894 – 1,893 – – – 2,053,787

Packages 2,409,000 (16,412) 8,496 – (263,663) – 2,137,421

O&M 1,330,501 – (42) – – – 1,330,459

ICI 523,595 – 12,365 (84,048) 7,911 12,451 472,274

6,314,990 (16,412) 22,712 (84,048) (255,752) 12,451 5,993,941

Direct cost of activities 4,983,264 – (1,703) (32,099) (255,752) (746) 4,692,964

Gross margin 1,331,726 (16,412) 24,415 (51,949) – 13,197 1,300,977

Selling, general and administrative

expenses 585,629 – 193 (12,254) 1,315 6,816 581,699

Net fi nancial expenses – – – (70,488) 177,727 3,836 111,075

Interest and capital taxes 174,903 – – – (174,903) – –

Income before income taxes 571,194 (16,412) 24,222 30,793 (4,139) 2,545 608,203

Income tax expense 123,422 1,476 – (6,486) (4,139) 6,541 120,814

Non-controlling interests 10,758 – – – (10,758) – –

Net income 437,014 (17,888) 24,222 37,279 10,758 (3,996) 487,389

Net income attributable to:SNC-Lavalin shareholders 437,014 (17,888) 24,265 37,279 – (4,004) 476,666

Non-controlling interests – – (43) – 10,758 8 10,723

Net income 437,014 (17,888) 24,222 37,279 10,758 (3,996) 487,389

Earnings per share (in $)Basic 2.89 3.16

Diluted 2.87 3.13

(1) Represents income tax expense from all IFRS adjustments, excluding $1.5 million of income tax expense relating to the 2010 correction.

(1)




168

35.3 A. RECLASSIFICATIONS AND CONSOLIDATION ELIMINATIONCertain fi gures have been reclassifi ed to conform to the presentation adopted by the Company upon transition to IFRS as required by IAS 1,

Presentation of Financial Statements, with no impact on net income attributable to the SNC-Lavalin shareholders.

Packages revenues between SNC-Lavalin and AltaLink have been eliminated on a consolidated basis while related intragroup profi ts have

not been eliminated upon consolidation in the period they occur, as transactions are considered realized by AltaLink via legislation applied

by an independent governmental regulatory body. As such, this packages revenues elimination has no impact on the Company’s net income.

35.4 EFFECT OF IFRS ADOPTION ON THE COMPANY’S CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2010


YEAR ENDED DECEMBER 31, 2010(IN THOUSANDS OF CANADIAN DOLLARS)

CANADIAN GAAP

2010 CORRECTION IFRIC 12 IAS 31

RECLASS I-FICATIONS AND

CONSOLIDATION ELIMINATION OTHER IFRS

(Note 35.2 e) (Note 35.2a) (Note 35.2b) (Note 35.3a)

Net income 437,014 (17,888) 24,222 37,279 10,758 (3,996) 487,389


Exchange differences on translating foreign

operations (21,077) – – – (116) – (21,193)

Available-for-sale fi nancial assets

(Note 35.2 d.1) 2,010 – – – 346 (13,812) (11,456)

Cash fl ow hedges (32,570) – – 100 16,948 – (15,522)

Defi ned benefi t pension plans and

other post-employment benefi ts (Note

35.2 d.2) – – – – – (1,442) (1,442)

Share of other comprehensive loss of

investments accounted for by the equity

method – – – – (27,250) – (27,250)

Income tax benefi t relating to components

of other comprehensive income (loss) – – – – 10,842 2,263 13,105

Total other comprehensive loss (51,637) – – 100 770 (12,991) (63,758)

Total comprehensive income 385,377 (17,888) 24,222 37,379 11,528 (16,987) 423,631

Total comprehensive income attributable to:

SNC-Lavalin shareholders 385,377 (17,888) 24,265 37,379 – (16,995) 412,138

Non-controlling interests – – (43) – 11,528 8 11,493

Total comprehensive income 385,377 (17,888) 24,222 37,379 11,528 (16,987) 423,631

35.5 EFFECT OF IFRS ADOPTION ON THE COMPANY’S CONSOLIDATED STATEMENTS OF CASH FLOWS

INTERESTS IN JOINT VENTURES (IAS 31)

Under Canadian GAAP, interests in jointly controlled entities were accounted for using the proportionate consolidation method. Under IFRS,

interests in jointly controlled entities are accounted for using either the equity method or the proportionate consolidation method. The Company

has elected to account for its interests in jointly controlled entities using the equity method upon transition to IFRS.

In regards to the statement of cash fl ows, under Canadian GAAP, the proportionate consolidation method required the Company to

consolidate its proportionate share of the jointly controlled entities’ cash fl ows on a line-by-line basis. Therefore, the adjustment to the

consolidated statements of cash fl ows represents an elimination of cash fl ows and cash positions previously recognized by the Company

under proportionate consolidation method.




169

STATEMENT OF CASH FLOWS (IAS 7)

Under Canadian GAAP, interest paid and income taxes paid included in the determination of net income were disclosed separately as

supplementary cash fl ow information. Under IFRS, interest paid and income taxes paid are included into the body of the statement of cash

fl ows as separate line items.

35.6 OTHER

As per IFRS 1, since IFRS 3 is not applied retrospectively, regardless of whether there is any indication that the goodwill may be impaired, the

fi rst-time adopter applies IAS 36, Impairment of Assets, in testing the goodwill for impairment at the date of transition to IFRS. Therefore,

the Company performed an impairment test on its goodwill as at the Date of Transition and concluded that there was no impairment.

36 Subsequent EventsA) INDEPENDENT REVIEW

In February 2012, the Board of Directors initiated an independent review (the “Independent Review”) led by its Audit Committee, of the facts

and circumstances surrounding certain payments that were documented (under certain agreements presumed to be agency agreements,

the “Representative Agreements”) to construction projects to which they did not relate, and certain other contracts. The Company’s senior

management and Board of Directors have been required to devote signifi cant time to the Independent Review and related matters which

has been distracting from the conduct of the Company’s daily business and signifi cant expenses have been incurred in connection with the

Independent Review including substantial fees of lawyers and other advisors. In addition, the Company and/or employees of the Company

could become the subject of investigations by law enforcement and/or regulatory authorities in respect of the matters that were subject

to the Independent Review which, in turn, could require the devotion of additional time of senior management and other resources. In the

absence of direct and conclusive evidence, the use and purpose of the payments or nature of the services rendered or actions taken under

these Representative Agreements could not be determined with certainty by the Independent Review. However, the absence of conclusive

fi ndings of the Independent Review does not exclude the possibility that, if additional facts that are adverse to the Company became known,

including matters beyond the scope of the Representative Agreements that were the subject of the Independent Review, sanctions could be

brought against the Company in connection with possible violations of law or contracts. The consequences of any such sanctions or other

actions, whether actual or alleged, could adversely affect our business and the market price of our publicly traded securities. In addition, the

Independent Review and any negative publicity associated with the Independent Review, could damage our reputation and ability to do business.

B) PROPOSED CLASS ACTION LAWSUIT

On March 1, 2012, a proposed class action lawsuit was fi led with the Quebec Superior Court, on behalf of persons who acquired SNC-

Lavalin securities from and including March 13, 2009 through and including February 28, 2012, whether in a primary market offering or in

the secondary market. The Motion for authorization alleges that certain documents issued by SNC-Lavalin between these dates contained

misrepresentations. The Motion seeks leave from the Superior Court to bring a statutory misrepresentation claim under Quebec’s Securities

Act and the equivalent provisions contained in the various other Canadian provinces’ securities legislation. The proposed action claims

damages equivalent to the decline in market value of the securities purchased by class members when SNC-Lavalin issued a press release

dated February 28, 2012, as well as the costs of administering the plan to distribute recovery pursuant to the class action. Due to the inherent

uncertainties of litigation, it is not possible to predict the fi nal outcome of this lawsuit or determine the amount of any potential losses, if

any, and SNC-Lavalin may, in the future, be subject to further class actions or other litigation.




170

Offi ce of the President

Board of DirectorsIAN A. BOURNE

Vice-Chairman and Interim

Chief Executive Offi cer


Montreal, Quebec

Canada

DAVID GOLDMAN

Company Director

Toronto, Ontario

Canada

Chair of the Audit Committee

Member of the Governance Committee

PATRICIA A. HAMMICK, Ph.D.

Company Director

Kilmarnock, Virginia

United States

Member of the Audit Committee

Member of the Human

Resources Committee

PIERRE H. LESSARD

Executive Chairman

Metro Inc.

Montreal, Quebec

Canada


Member of the Human

Resources Committee

EDYTHE (DEE) A. MARCOUX

Company Director

Gibsons, British Columbia

Canada

Chair of the Health, Safety

and Environment Committee



PROFESSOR LORNA R. MARSDEN, C.M., Ph.D.

President Emerita

York University

Toronto, Ontario

Canada

Member of the Human

Resources Committee

Member of the Health, Safety


CLAUDE MONGEAU

President and Chief Executive Offi cer

Canadian National Railway Company

Montreal, Quebec

Canada


GWYN MORGAN, O.C.

Chairman of the Board


Montreal, Quebec

Canada

Chair of the Governance Committee

MICHAEL D. PARKER, CBE

Company Director

London

United Kingdom




THE HON. HUGH D. SEGAL, C.M.

Senator

Senate of Canada Ottawa, Ontario

Canada

Member of the Human

Resources Committee



ERIC D. SIEGEL

Company Director

Ottawa, Ontario

Canada




(Appointed January 1, 2012)

LAWRENCE N. STEVENSON

Managing Director

Callisto Capital LP Toronto, Ontario

Canada

Chair of the Human

Resources Committee


IAN A. BOURNE

Vice-Chairman and Interim

Chief Executive Offi cer

FEROZ ASHRAF

Executive Vice-President

Mining and Metallurgy

JEAN BEAUDOIN


Integrated Management Systems

JIM BURKE


Airports, Mass Transit,

Railways, Ports and Marine

and Environment

DARLEEN CARON


Global Human Resources

CHARLES CHEBL

(appointed February 9, 2012)


Infrastructure and Construction

CHRISTIAN JACQUI

(appointed January 2nd, 2012)


Europe

PATRICK LAMARRE


Power

GILLES LARAMÉE

Executive Vice-President and Chief

Financial Offi cer

ANDREW MACKINTOSH


Hydrocarbons and Chemicals

MICHAEL NOVAK


International and Aboriginal Affairs

CHARLIE RATE


Operations and Maintenance



171

Glossary of TermsThe following section defi nes some abbreviations

and terms used throughout the fi nancial report.

BOOKING-TO-REVENUE RATIORatio obtained by dividing the contract bookings by the revenues, for a given period.

EPCType of agreement classifi ed as part of Packages activity whereby the Company

provides Engineering, Procurement, and Construction.

EPCMType of agreement classifi ed as part of Services activity whereby the Company provides

services related to Engineering, Procurement, and Construction Management activities.

When entering into EPCM contracts, the Company does not account for construction

and/or procurement amounts in its revenues, as it is acting as an agent to manage

the procurement and/or construction on behalf of its clients.

COST-PLUS REIMBURSABLE CONTRACTContract in virtue of which the Company charges the client its actual costs as they

are incurred plus a profi t margin.

COST REIMBURSABLE WITH A FIXED-FEE CONTRACTContract in virtue of which the Company charges the client its actual costs as they

are incurred, plus a fi xed fee amount over the term of the agreement.

FIXED-PRICE CONTRACTContract in virtue of which the amount to be charged by the Company is fixed,

regardless of the actual costs to be incurred by the Company. Also referred to as

lumpsum contracts.

FREEHOLD CASHNon-IFRS fi nancial measure defi ned by the Company as its cash and cash equivalents,

excluding cash and cash equivalents from fully consolidated ICI, not committed for its

operations, investments in ICI and balance of payment for past business acquisitions.

GAAPCanadian generally accepted accounting principles.

HYDROCARBONS & CHEMICALSPart of Services and Packages activities, it includes projects in the areas of bitumen

production, heavy and conventional oil production, onshore and offshore oil and gas,

upgrading and refi ning, petrochemicals, chemicals, biofuels and green chemicals,

gas processing, liquefi ed natural gas (“LNG”) plants and re-gasifi cation terminals,

coal gasifi cation, carbon capture, transportation and storage, pipelines, terminals and

pump stations.

IFRSInternational fi nancial reporting standards.

INFRASTRUCTURE & ENVIRONMENTPart of Services and Packages activities, it includes a full range of infrastructure

projects for the public and private sectors including airports, buildings, health and care,

educational and recreational facilities, seaports, marine and ferry terminals, fl ood control

systems, urban transit systems, railways, roads and bridges, and water and wastewater

treatment and distribution facilities. It also includes social and environmental impact

assessments and studies, community engagement, site assessment, remediation

and reclamation, ecological and human health risk assessments, waste management,

water resources planning, development and supply, treatment and sanitation, marine

and coastal management, geoenvironmental services, climate change, air quality and

acoustics, environmental management, geographic information systems, and agriculture

and rural development.

INFRASTRUCTURE CONCESSION INVESTMENTS (“ICI”)The Company’s equity investments in infrastructure concessions for public services

such as airports, bridges, cultural and public service buildings, power, mass transit

systems, roads and water.

LUMPSUM CONTRACTContract in virtue of which the amount to be charged by the Company is fixed,

regardless of the actual costs to be incurred by the Company. Also referred to as

fi xed-price contract.

MINING & METALLURGYPart of Services and Packages activities, it includes a full range of services for all

mineral and metal recovery processes, including mine infrastructure development,

mineral processing, smelting, refi ning, mine closure and reclamation, mine and tailings

management, and fertilizer plants.

NET CASH POSITIONCash and cash equivalents less cash and cash equivalents from ICI and recourse debt.

O&MCategory of activity that includes contracts under which the Company provides

Operations and Maintenance in the following lines of businesses: i) project, property

and facility management, ii) industrial, iii) transportation, and iv) defence and logistics.

O&M revenues are derived primarily from cost-reimbursable with fi xed-fee contracts

and from fi xed-price contracts.

OPERATING INCOMEGross margin less directly related selling, general and administrative expenses,

imputed interest and corporate selling, general and administrative expenses. Imputed

interest is allocated monthly to the Company’s industry segments at a rate of 10%

per year resulting in a cost or revenue depending on whether the segment’s current

assets exceed current liabilities or vice versa, while corporate selling, general and

administrative expenses are allocated based on the gross margin of each of the

Company’s segments.

OTHER INDUSTRIESServices and Packages projects in several industry sectors, namely agrifood,

pharmaceuticals and biotechnology, sulphuric acid as well as projects related

to other industrial facilities not already identifi ed as part of any other preceding

industry segments.

PACKAGESCategory of activity that includes contracts wherein SNC-Lavalin is responsible not

only for providing one or more Services activities, but also undertakes the responsibility

for providing materials/equipment and/or construction activities. As such, Packages

revenues include the cost of materials, equipment and/or construction.

POWERPart of Services and Packages activities, it includes projects in hydro, thermal and

nuclear power generation, energy from waste, green energy solutions, and transmission

and distribution.

REVENUE BACKLOGForward-looking indicator of anticipated revenues to be recognized by the Company,

determined based on contract awards that are considered fi rm. O&M activities are

provided under contracts that can cover a period of up to 40 years. In order to provide

an information that is comparable to the revenue backlog of other categories of activity,

the Company limits the revenue backlog to the earlier of: i) the contract term awarded;

and ii) the next fi ve years.

ROASEReturn on Average Shareholders’ Equity, corresponding to the trailing 12-month

net income attributable to SNC-Lavalin shareholders, divided by a trailing 13-month

average equity attributable to SNC-Lavalin shareholders, excluding “other components

of equity”.

SERVICESCategory of activity that includes contracts whereby SNC-Lavalin provides engineering

services, feasibility studies, planning, detailed design, contractor evaluation and

selection, project and construction management, and commissioning.



172

Ten-Year Statistical SummaryYEAR ENDED DECEMBER 31(IN MILLIONS OF CANADIAN DOLLARS, UNLESS OTHERWISE INDICATED)

IFRS Canadian GAAP

2011 2010 2009 2008 2007 2006 2005 2004 2003 2002

Revenues by activity

Services 2,437.8 2,053.8 2,221.4 2,305.4 1,726.1 1,180.2 958.5 923.6 888.8 777.2

Packages 2,871.5 2,137.4 2,202.2 3,229.5 3,635.7 2,835.9 1,704.1 1,502.7 1,463.7 1,769.3

Operations and Maintenance 1,399.2 1,330.4 1,297.9 1,225.0 1,058.4 920.9 695.9 646.1 569.7 553.2

Infrastructure Concession Investments (ICI) 501.4 472.3 380.2 347.0 309.4 212.2 88.7 85.0 76.1 64.6

7,209.9 5,993.9 6,101.7 7,106.9 6,729.6 5,149.2 3,447.2 3,157.4 2,998.3 3,164.3

Gross margin 1,252.1 1,301.0 1,151.1 1,012.9 565.3 536.8 457.1 446.3 433.6 404.5

Selling, general and administrative expenses 654.7 581.7 545.6 515.2 392.8 285.2 257.0 254.8 270.3 259.1

Net fi nancial expenses

From ICI 99.7 85.1 112.2 108.2 104.6 74.3 47.6 52.9 44.7 47.9

From other activities 15.5 26.0 16.0 (13.7) (32.1) (21.0) (3.5) 5.2 4.6 8.3

Income before gains and income tax expense 482.2 608.2 477.3 403.2 100.0 198.3 156.0 133.4 114.0 89.2

Gain on disposal of a portion of the investment in 407 International Inc. and dilution gain – – – – – – – – – 164.0

Income before income tax expense 482.2 608.2 477.3 403.2 100.0 198.3 156.0 133.4 114.0 253.2

Income tax expense 94.9 120.8 108.2 85.1 23.5 55.0 50.6 46.1 43.2 65.2

Non-controlling interests – – 9.7 5.6 9.2 7.3 2.2 – – –

Net income from continuing operations 387.3 487.4 359.4 312.5 67.3 136.0 103.2 87.3 70.8 188.0

Net income from discontinued operations – – – – 84.1 21.8 24.3 15.7 15.7 14.5

Net income 387.3 487.4 359.4 312.5 151.4 157.8 127.5 103.0 86.5 202.5

Net income attributable to

SNC-Lavalin Shareholders 378.8 476.7 359.4 312.5 151.4 157.8 127.5 103.0 86.5 202.5

Non-controlling interests 8.5 10.7 – – – – – – – –

Net income 387.3 487.4 359.4 312.5 151.4 157.8 127.5 103.0 86.5 202.5

Return on average shareholders’ equity (1) 19.3% 28.4% 27.3% 29.1% 16.4% 19.0% 17.0% 15.1% 13.8% 36.0%

Acquisition of property and equipment

From ICI 545.8 402.0 274.1 193.5 308.6 182.5 22.3 9.1 75.0 13.1


613.0 448.0 306.5 239.8 349.8 220.2 47.8 28.7 89.8 45.9

Depreciation of property and equipment and amortization of other non-current assets

From ICI 93.1 86.9 86.6 88.1 76.9 52.4 13.7 13.5 11.0 10.4


138.5 126.5 130.1 130.0 112.1 80.6 38.3 44.9 43.6 41.6

EBITDA (2)

From ICI 344.1 330.6 252.9 238.8 214.5 146.4 65.5 62.8 49.9 208.1


735.9 845.8 735.6 627.7 284.6 332.2 238.4 236.4 206.9 351.0

(1) Excluding other components of equity.

(2) EBITDA, a non-IFRS fi nancial measure, is defi ned as net income before net fi nancial expenses, income tax expense, depreciation of property and equipment

and amortization of other non-current assets. Under Canadian GAAP, net income was adjusted to add back non-controlling interests.

Note: The fi gures for 2009 and prior periods have been prepared in accordance with Canadian GAAP, and have not been restated as they relate to periods prior

to the Date of Transition to International Financial Reporting Standards (“IFRS”). The net income for periods prior to the Date of Transition does not include

non-controlling interests, as they were presented outside shareholders’ equity under Canadian GAAP.



173

YEAR ENDED DECEMBER 31(IN MILLIONS OF CANADIAN DOLLARS, UNLESS OTHERWISE INDICATED)

IFRS Canadian GAAP

2011 2010 2009 2008 2007 2006 2005 2004 2003 2002

Supplementary Information:

Net income (loss) attributable to SNC-Lavalin shareholders from ICI

From Highway 407 77.2 50.3 9.8 20.0 10.1 8.1 (4.7) (14.5) (12.7) 113.0

From other ICI 54.0 84.6 27.1 17.2 13.2 6.8 6.1 7.2 4.1 5.2

Net income attributable to SNC-Lavalin shareholders excluding ICI 247.6 341.8 322.5 275.3 128.1 142.9 126.1 110.3 95.1 84.3

Net income attributable to SNC-Lavalin shareholders 378.8 476.7 359.4 312.5 151.4 157.8 127.5 103.0 86.5 202.5

Earnings per share ($)

Basic 2.51 3.16 2.38 2.07 1.00 1.05 0.84 0.68 0.57 1.35

Diluted 2.49 3.13 2.36 2.05 0.99 1.03 0.83 0.67 0.56 1.32

Weighted average number of outstanding shares (in thousands)

Basic 150,897 151,020 151,042 150,925 151,172 151,034 151,499 151,816 151,130 150,416

Diluted 151,940 152,277 151,992 152,265 152,697 152,685 153,143 153,449 153,639 153,888

Annual dividends declared per share ($) 0.85 0.72 0.62 0.51 0.39 0.30 0.23 0.18 0.14 0.12

AT DECEMBER 31(IN MILLIONS OF CANADIAN DOLLARS,UNLESS OTHERWISE INDICATED)

IFRS Canadian GAAP

2011 2010 2009 2008 2007 2006 2005 2004 2003 2002

Number of employees 28,100 23,923 21,948 21,260 18,691 13,297 11,187 9,545 9,047 13,284

Revenue backlog by activity

Services 2,226.1 1,410.7 1,464.9 1,545.3 1,556.5 819.8 604.2 564.9 567.7 416.2

Packages 5,482.8 5,572.4 4,197.5 3,508.0 4,457.0 6,082.6 4,308.1 2,483.2 1,749.5 1,715.4

Operations and Maintenance 2,379.1 2,732.8 2,596.1 2,196.2 2,513.9 1,570.2 2,112.4 2,213.5 764.3 1,135.9

10,088.0 9,715.9 8,258.5 7,249.5 8,527.4 8,472.6 7,024.7 5,261.6 3,081.5 3,267.5

Cash and cash equivalents 1,231.0 1,235.1 1,218.2 988.2 1,088.6 1,106.3 1,153.5 676.3 471.9 467.4

Working capital 32.0 679.9 544.1 276.4 270.2 300.3 411.4 334.8 395.6 277.3

Property and equipment

From ICI 2,637.7 2,072.8 2,217.0 1,750.7 1,640.7 1,439.3 452.5 450.8 456.8 451.0


2,797.6 2,188.0 2,331.0 1,874.1 1,752.7 1,533.6 533.5 528.2 543.8 558.4

Recourse long-term debt 348.4 348.2 452.9 104.7 104.6 104.5 104.4 104.3 104.2 104.0

Non-recourse long-term debt

From ICI 1,561.4 1,529.0 2,005.5 2,003.3 1,971.0 1,650.5 785.9 728.5 673.1 612.1

From other activities – – – – – 26.2 28.2 30.5 32.1 34.8

1,561.4 1,529.0 2,005.5 2,003.3 1,971.0 1,676.7 814.1 759.0 705.2 646.9

Equity attributable to SNC-Lavalin shareholders 1,883.1 1,816.8 1,434.7 1,089.2 922.4 901.9 786.2 716.7 658.3 597.1

Book value per share ($) 12.47 12.03 9.50 7.21 6.11 5.97 5.20 4.73 4.33 3.97

Number of outstanding common shares (in thousands) 151,034 151,034 151,033 151,033 151,038 151,032 151,282 151,525 152,005 150,472

Closing market price per share ($) 51.08 59.77 53.99 39.69 48.14 31.47 25.43 19.33 17.00 11.35

Market capitalization 7,714.8 9,027.3 8,154.3 5,994.5 7,271.0 4,753.0 3,847.6 2,929.5 2,584.1 1,707.9

Note: Starting in 2011, the Company no longer discloses its ICI revenue backlog and, as such, all comparative fi gures have been restated accordingly.



174

Information for ShareholdersCommon Share Information

Listed: Toronto Stock Exchange

Symbol: SNC

Shares outstanding: 151.0 million (December 31, 2011)

Market capitalization: $7,715 million (December 31, 2011)

Trading Activity and Market Capitalization

Volume(M)

High($)

Low($)

Close($)

Market Capitalization

at Dec. 31(M$)

2011 122.8 63.23 38.51 51.08 7,715

2010 98.7 60.00 41.59 59.77 9,027

2009 103.6 54.00 26.35 53.99 8,154

2008 147.3 61.95 26.00 39.69 5,995

2007 102.7 51.04 30.00 48.14 7,271

Dividends

DIVIDENDS DECLARED FOR THE LAST FIVE YEARS (in Canadian $)

07 08 09 10 11

0.39

0.51

0.62

0.72

0.85

Performance Graph

The following performance graph illustrates the fi ve-year cumulative total

return assuming $100 was invested on December 31, 2006 in common

shares of SNC-Lavalin and in the S&P/TSX Composite Total Return Index.

FIVE-YEAR CUMULATIVE TOTAL RETURN ON $100 INVESTED (assumes dividends are reinvested)

06 07 08 09 10 11

SNC-Lavalin S&P/TSX Composite Total Return Index

$100

Debt Instrument

$350 million principal amount of debentures, 6.19%, due July 2019

Credit Ratings

Standard & Poor’s Ratings Services BBB+ / stable

DBRS BBB (high) (1)

(1) Under review with developing implications

Annual Meeting

The Annual Shareholder’s Meeting will be held at 11:00 a.m. Eastern

Daylight Time on Thursday, May 3rd, 2012, at the Toronto Board of Trade,

located at First Canadian Place, 77 Adelaide Street West, Toronto, Ontario.

Key Dates for 2012

EarningsAnnouncement

DividendRecord

DividendPayment

Q1 May 3 May 17 May 31

Q2 August 3 August 17 August 31

Q3 November 2 November 16 November 30

Q4 March 8, 2013 March 22, 2013 April 5, 2013

Note: Dividends are subject to approval by the Board of Directors.

These dates may change without prior notice.

Registrar and Transfer Agent

If you would like to modify your address, eliminate multiple mailings,

transfer SNC-Lavalin shares or for other information on your shareholder

account such as dividends and registration, please contact:

Computershare Investor Services Inc.

100 University Ave, 9th Floor, North Tower, Toronto ON, M5J 2Y1

Telephone: 1-800-564-6253

Web: www.computershare.com

Independent Auditor

Deloitte & Touche LLP

Chartered Accountants

Montreal QC

Investor Relations

Denis Jasmin, Vice-President, Investor Relations

[email protected]

514-390-8000, ext. 7553

$104.16

$172.98

175S N C - L A V A L I N


Corporate Governance

Our website provides information on our corporate governance practices,

including our code of ethics and the mandates for the Board of Directors

and the Board Committees as well as various position descriptions.

Proxy Circular

The proxy circular contains information about our directors, board

committee reports and further details of our corporate governance

practices. This document is available online at www.snclavalin.com.

Have Your Say

If you would like to ask a question at our annual meeting of shareholders,

you can submit it in person. You can also send your question by writing

to the Vice-President and Corporate Secretary at:

Vice-President and Corporate Secretary

455 René-Lévesque Blvd. West, Montreal QC, H2Z 1Z3, Canada

Head Offi ce


455 René-Lévesque Blvd West, Montreal QC, H2Z 1Z3, Canada

www.snclavalin.com

We invite you to visit our website at www.snclavalin.com to learn more

about SNC-Lavalin, our governance practices, our continuous disclosure

materials and to obtain electronic copies of this and other reports.

Additional Copies

To order additional copies of this report, or to order the 2011 Annual

Report, in English or French, please visit the Investors section at

www.snclavalin.com.

Exemplaires en français

Pour télécharger la version française de ce rapport ou en demander un exem-

plaire, veuillez consulter la section Investisseurs au www.snclavalin.com.

100%

HEAD OFFICE455 René-Lévesque Blvd. West, Montreal, QC, H2Z 1Z3, Canada

Tel.: 514-393-1000 Fax: 514-866-0795

www.snclavalin.com

78Trees saved

1.0 tReduction in solid waste

(1/12 of a dump truck)

135 m³ Recuperated waste water(about 1/20

of an Olympic swimming pool)

10 kgReduction

in suspended particles in water

(or the equivalent of waste water from

1 household over 1 month)

3 t CO₂Reduction

in atmospheric emissions

(or the emissions of 1 car for about

7 months)

9,378 kWhClear energy saved

(or the energy used to light

and heat 1 housefor just over 4 months)

Source: Environmental impact estimates were made using the Environmental Defense Fund Paper Calculator. www.papercalculator.org

THANK YOU Our sincere thanks to all our employees who agreed to appear in this Financial Report.

ABOUT THE PRODUCTION OF OUR FINANCIAL REPORT SNC-Lavalin recognizes the importance of contributing to the protection of our environment by using paper that comes

from well-managed forests or other controlled sources, certifi ed in accordance with the international standards of the

Forest Stewardship Council (FSC).

This fi nancial report is printed on paper certifi ed by Environmental Choice (EcoLogo) with 100% post-consumption

recycled fi bres, de-inked without chlorine and made using biogas energy.

Using recycled paper for our annual report rather than virgin fi bre paper helps protect the environment in a number of ways:

We invite you to visit our website at www.snclavalin.com to learn more about SNC-Lavalin. In addition to this fi nancial report, SNC-Lavalin has produced a separate 2011 annual report, as well as a sustainability report that will be available in the Fall of 2012. All documents will be available on our website or can be ordered through the company.

P R I N T E D I N C A N A D A D E S I G N : W W W . A R D O I S E . C O M

financial report

Documents

revenuess n c

r e p o r t228

r e p o r t4march25

r e p o r t1s

r e p o r t3dividendsin

o u i s s u c r efrancek

annual nancial information

annual information form